Given the current uncertainty, the Bank of England’s decision to hold interest rates at 3.75% last week was “the only one possible”, said Nils Pratley in The Guardian. “Policymakers are as clueless on the length of the war, and the cost of energy six weeks or six months from now, as stock market investors.” So why did the London bond market throw such a wobbly?

UK borrowing costs soared to their highest level since the 2008 financial crisis on the day after the Bank’s meeting, with the yield on benchmark 10-year gilts surging to 5%, “deepening a three-week long rout”, said the Financial Times. Two-year gilts – the part of the market most sensitive to interest-rate moves – were also pummelled.

Britain has been hit hardest in the global bond sell-off since the outbreak of war, because our dependency on imported energy means spiking oil and gas prices “quickly feed through to broader inflation”. When combined with flatlining growth and rising household borrowing costs, the risk of recession is plain.

‘The spectre of stagnation’

Perhaps last week’s turmoil was “a weird overreaction” to the Bank’s hawkish new tone, said Katie Martin in the same paper – rather than interest rate cuts this year, we are now contemplating hikes. But “the spectre of stagnation stalks the land”. The market has stabilised, but “in aggregate, more than £100 billion has been erased from the market value of UK government bonds in a matter of weeks”, said Stuart Fieldhouse on The Armchair Trader.

“UK rate expectations have been on a remarkable journey in barely a month,” said Chris Beauchamp at IG. “A full 100 basis points rise in rates is now expected for this year.” The bad news for consumers and business is compounded by the implications for the Government of “a fiscal squeeze”. If there’s further escalation in the Middle East, “this may be just the beginning of the crisis”.

The ‘Maradona Effect’

As data on demand weakness becomes evident, the Bank of England won’t want “to compound the damage with higher interest rates”, said Karen Ward of J.P. Morgan in the Financial Times. I suspect it is deploying the “Maradona Effect”, named after the footballing legend whose greatest skill was feinting. Conveying a very hawkish signal about the outlook for rates may obviate the need to actually raise them.

The Bank “faces an acute dilemma”, said Roger Bootle in The Telegraph. As we learnt in 2022, the issue at stake is what happens to inflation after the initial, oil-induced spike. The case for higher rates is to ward off “second-round effects” and stop inflation becoming embedded. “The art of central banking lies partly in not overreacting, but also in not taking action too late.”

The independence of the US Federal Reserve seems ever more at risk as Donald Trump continues to try to influence the central bank’s policies, and has even ordered a criminal investigation into its chair, Jerome Powell.

Since the beginning of his second term, Trump has repeatedly called for Powell to be replaced. He has also attempted to remove board member Lisa Cook, accusing her of mortgage fraud. Trump’s attacks on the Fed have widely been seen as an attempt to “force interest rate cuts out of the central bank, in defiance of its mandate and independence”, said Sky News.

Outside the US, too, there is growing (if more restrained) criticism of the idea of central bank independence. The long-accepted notion that a central bank, unsaddled by political turmoil, is the best vehicle for delivering economic results looks weaker in the face of continuing global instability, swelling deficits and high inflation.

Why is independence important?

The pro-independence argument is that politicians are likely to be “tempted by self-defeating monetary policies” in pursuit of short-term electoral goals, such as decreasing unemployment and “inflating away debts”, said The Economist. Monetary policies that “make everyone better off” in the long run are more attainable and more sustainable if they’re “delegated to a conservative central banker, perhaps even an price-obsessed ‘inflation nutter’”.

The principle that central banks should “enjoy some independence” is certainly not new. In 1806, Napoleon Bonaparte said that the recently created Bank of France should “be sufficiently in the hands of the government”, but “not too much”. But it was really after the Second World War that the modern idea of central-bank independence emerged. In 1951, the “Treasury-Fed accord” gave the US Federal Reserve increased independence and, around the same time, Germany’s Bundesbank was given more autonomy, soon becoming “a model for the rest of the continent”.

Central banks have since been seen as a “triumph of applied economics”. As “independence rose, inflation fell” and “recessions became rarer”. But now this “triumph” is “under threat” in the US and elsewhere.

Why is that changing?

Recent surges in inflation have damaged public trust in central banks and sparked vocal criticism from politicians. The global financial crisis, a prolonged period of quantitative easing, and the “pressures of climate risk, geopolitical shocks and fiscal activism” are further raising the “fundamental” question of whether the “orthodox consensus” has “reached its limits”, said Chatham House.

Independence worked well when most politicians and experts “agreed on what central banks should do to stabilise the economy”, said UnHerd. But that consensus has “disappeared” and “independence without consensus is tyranny”.

Should we be worried?

Trump’s interference with monetary policy “could lead to financial panic and economic disaster” that would be felt around the world, said Bloomberg. A monetary policy dictated by “short-term political calculations” might lead to lower interest rates but would then spark higher inflation and, ultimately, “increase the cost of credit, discourage private investment and make public debt (which, in the US, is already rising unsustainably) harder to service”.

But Trump’s “damaging attacks on the Fed shouldn’t obscure its failures”, said Investors’ Chronicle. “Technocratic policymakers with limited democratic accountability shouldn’t be beyond censure.” The Fed’s recent “rate calls” have “contributed directly to house price and asset bubbles” and its “regulatory failures” in the past “helped lead to the subprime mortgage disaster” and the 2008 crash. Changes to how central banks operate are not “inherently a terrible idea”.

“Labour promised not to increase income tax, not to increase National Insurance and not to increase VAT. Does the prime minister still stand by his promises?” That was Conservative leader Kemi Badenoch’s opening salvo at Prime Minister’s Questions this week.

The answer from Keir Starmer was eyebrow-raisingly non-committal, stating only that the government would “lay out” in the Budget its plans to “build a stronger economy” and “deliver a better future for our country”.

That Budget is still a month away but there are widespread reports that Rachel Reeves is considering a manifesto-busting move to increase the top 45p rate of income tax rate or to lower the threshold at which people have to start paying it.

What did the commentators say?

Come the Budget, the Chancellor faces “a terrible choice”, said Martin Wolf in the Financial Times. Either she must “cut spending that people want and raise taxes that people feel they cannot afford” or she has to “allow explosive rises in public debt”. That, in short, is “the plight of Rachel Reeves”.

With the Office for Budget Responsibility expected to deliver a further £20 billion-plus blow to public finances by downgrading its productivity forecast, the chancellor has limited options. She is under pressure from many within her party to increase spending, rather than cut it, and has already confirmed she will not borrow more to balance the books.

To avoid breaking Labour’s manifesto pledge, Reeves could impose some wholly new taxes. She has been “holding discussions over a raft of” possibilities, said David Maddox and Caitlin Doherty in The Independent. These are said to include a 1% mansion levy on properties worth over £2m, a gambling tax and a bank profits levy. There is also talk of further capital gains reforms, and “ending tax relief on pensions”.

But raising money in this way risks causing “unnecessary amounts of economic damage” and adding “needless complexity to the system”, Isaac Delestre of the Institute for Fiscal Studies think tank, told the paper.

There is a “persuasive case for ignoring the Labour manifesto”, said Adam Smith in The Telegraph. Raising income tax will “demonstrate that the government is serious about getting a grip on public finances” and it will be rewarded by the bond markets with a “multibillion-pound fall in government borrowing costs”. It will “be less damaging to GDP than any further raids on business taxes” and the increased revenues will “help the Bank of England tackle inflation”.

What next?

Economists and Treasury mandarins may be lining up to agree that there’s a “powerful case” for a small income tax rise, said Smith in The Telegraph, but it would be “a misjudgement so grave, it would destroy Reeves’ career and this government”.

“Promises made” must be “promises kept”, said The Guardian’s editorial board. If not, “it will be terrible for politics”, said Lewis Goodall on his Substack. “Backtracking on one of the only promises about which voters might be aware” would mean it’s “game over for the party”.

Breaking the income tax manifesto promise would “come with a colossal political hit”, said the BBC’s political editor Chris Mason. But such is the state of the economy, “some within the party” are telling Reeves “to go for it” anyway.

The Governor of the Bank of England, Andrew Bailey, has softened his sceptical views on the future of stablecoins in the UK, saying it would be wrong to dismiss the cryptocurrency “as a matter of principle”. Writing in the Financial Times, Bailey recognised their potential for “innovation in payments systems” but warned that the new technology “must still answer old central banking questions” to maintain public trust in money, which is “critical” to all economies.

What are stablecoins?

Stablecoin is a form of cryptocurrency, the digital currencies operated by private companies or individuals rather than central banks like the Bank of England (BoE) or the European Central Bank. Crypto, which is currently unregulated in the UK, has seen a major rise in recent years, based on risky “speculative trading”, according to the Financial Conduct Authority.

The most popular and well-known stablecoin is Tether (USDT), with other leading stablecoins including USD Coin (USDC-USD) and Stasis Euro (EURS-USD).

How is it different from other cryptocurrency?

Unlike cryptocurrencies like Bitcoin or Ethereum, which are completely detached from centralised financial institutions, stablecoins are “pegged” to tangible assets, like US dollars, the British pound, or gold prices.

They are designed to hold a steady value, only rarely dipping above or below a designated ratio. For example, a stablecoin with perfect efficiency to the US dollar, would consistently value one “coin” as one dollar. Some stablecoins have a reserve controlled by an algorithm to generate more coins or remove coins according to supply and demand.

Why is the UK government interested in it?

The market for this category of cryptocurrency is already valued at $200 billion (£148 billion) globally. With London responsible for 40% of foreign exchange turnover, the prospect of formal UK participation in stablecoins is an attractive one, according to a report by Innovate Finance.

The attraction of stablecoin is considerable. It bypasses traditional currency conversions, and facilitates “more predictable” and “lower-cost” payments internationally, said Yahoo Finance.

The government is intent on driving forward “developments in blockchain technology”, including stablecoins, Chancellor Rachel Reeves said in her Mansion House speech in July.

The BoE aims to publish a consultation paper, setting out a blueprint for the “UK’s systemic stablecoin regime”, to ensure the UK will “reap the benefits” of the new currency, said Bailey in the FT. The BoE had previously proposed that stablecoin holdings would be capped at as little as £20,000, with no interest offered to customers.

The European Union, Hong Kong, Japan (since 2023) and the United States have all implemented rules to make trading more transparent, a step which has been broadly welcomed by the crypto community.

What are the concerns?

Stablecoins can still be risky, even when pegged to tangible assets. If a stablecoin strays too far from its target value and this cannot be corrected, it can be “depegged”.

On a larger scale, if stablecoins were left unregulated, central banks could be caught on a tightrope. If a stablecoin crashes, the fallout could trigger “fire sales” – rapid sales at significantly low prices due to financial distress – to establish an equilibrium, said Bloomberg.

Conversely, if stablecoins “prove their worth”, allowing users to exchange and store vast sums of money, the “monetary monopoly” of the banks would be undermined.

And as with other cryptocurrencies, an unregulated system can be exploited for illegal activity. Trading is “anonymous, fast and cheap”, making stablecoins highly attractive for criminals to use to conduct scams or launder funds.

Fears the UK is heading for a recession are growing as the economy unexpectedly shrank slightly in the third quarter, with gross domestic product falling by 0.1%.

The "tepid numbers" from the Office for National Statistics (ONS) for the three months to September represent a "downward revision" from the earlier estimate of a 0.2% increase, and highlight the economy's struggle to "shake off low-growth performance", said the Financial Times.

The figures mean the UK is "at risk of recession", said the BBC. So how might the nation's economy perform in 2024?

What did the papers say?

The UK's economy is "stuck in a lacklustre state" as it wrestles with "high borrowing costs and the legacy of the worst inflationary upsurge for a generation", said the FT.

Projections released by the Bank of England in November suggested there is "little immediate prospect of a bounceback", as the central bank forecasts "near-zero growth through next year, even as the worst of the inflation subsides".

But speaking to the paper, Chancellor Jeremy Hunt insisted that 2024 was "when we need to throw off our pessimism and declinism about the UK economy".

Hunt has "sought to give Tory MPs an early Christmas present" with "another hint he could cut taxes ahead of a general election next year", said The Independent. The chancellor said the government would "cut the tax burden if we are able to".

He also raised the prospect of the Bank of England reducing interest rates in 2024, which is "when people will begin to have more confidence about their own personal prospects and the prospects of their family".

However, the FT said that his talk of rate cuts will "jar" with the Bank of England, which "jealously guards its independence and has been insisting it is too soon to discuss easing policy".

If employment "stays solid" then the economy "should do OK", John Stepek wrote for Bloomberg, but if unemployment "really surges (as opposed to rising a bit), then all bets are off".

Stepek also forecast that 2024 would be "sluggish for the housing market". Although Hunt "probably doesn't have much room for fireworks at his next budget", he added, it's "hard to see him resisting some sort of freebie" in the form of a tax cut.

But there could be big problems from further afield. Philip Pilkington warns in The Telegraph that the West is "sleepwalking into an economic catastrophe in the Red Sea". The Houthi rebels "could well manage to enact a de facto blockade of the Suez Canal by preventing commercial maritime vessels entry to the Red Sea", he wrote, and "the economic effects of this could be nothing short of profound".

If the Red Sea "remains a no-go zone for some time", it "looks like the Western world is going to have to brace for another wave of inflation", and "frankly, it is not clear that our economies, beaten and bruised from the last wave, can take it".

What next?

The latest ONS figures "show how close the UK could have come to a formal recession, which is marked by two consecutive quarters of negative growth", said The Times, but it will "not be clear until February" whether the UK has entered or avoided recession when figures are released for the October to December quarter.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, told The Times he expected growth to hold steady in the final three months of the year, "before then rising at an average quarter-on-quarter rate of 0.3% during 2024".

However, one of the world's biggest active bond fund managers has "dampened the festive mood" by warning of a serious economic downturn next year, said The Guardian.

Daniel Ivascyn, chief investment officer at Pimco, compared the UK economy with the US, and said that "in the case of the UK – a smaller, open economy, with a consumer that's feeling the brunt of central bank policy far more than their US counterparts – you just have a higher probability of more significant economic deterioration".

He added that "there's potentially more hard landing risks", a term that refers to a marked economic slowdown or downturn following a period of rapid growth.

The Bank of England raised interest rates for the 14th time in a row today, by 0.25%. The Bank’s Monetary Policy Committee voted by a 6-3 majority in favour of the rate rise.

At 5.25%, interest rates are at a “fresh 15-year high”, said The Times Money Mentor. Monthly repayments will increase for “around 1.4 million mortgage holders on tracker deals” as a result, which may have a knock-on impact for some tenants in privately rented accommodation.

But the rise does “mark a smaller increase than July’s dramatic rise” from 4.5% to 5%, suggesting “price rises have begun to ease”, said the BBC. And “banks may offer greater returns on savings accounts”.

The consumer prices index (CPI) dropped to 7.9% in the year to June, a fall that was “larger than expected”, said The Times Money Mentor. The Bank of England (BoE) hopes that raising rates will help to further ease inflation, but the CPI remains “well above most industrial nations”, said The Guardian, and is “almost four times the Bank’s 2% target”.

Rishi Sunak told LBC yesterday that there is “light at the end of the tunnel” for many people in the UK, but admitted that progress on his promise to halve inflation by the end of the year was not moving as quickly as he would like. He said he was making “difficult but responsible decisions” in order to “bring down inflation for everyone”.

In the US and the eurozone, “hopes are rising that interest rates are close to a peak”, said the Financial Times, while in the UK, financial markets are expecting further 0.25% increases before the end of the year.

Announcing the increase, the BoE said it expects inflation to drop “markedly” this year, and that its target of 2% could be met by early 2025.

Bank of England (BoE) governor Andrew Bailey has said inflation will fall “markedly” this year, as he signalled that the central bank is likely to raise interest rates once again in an attempt to reach its 2% inflation target.

Bailey made the comments at the annual Mansion House bankers’ dinner, attended by Chancellor Jeremy Hunt and Rishi Sunak, insisting that falling energy and food prices would drive down inflation over the rest of the year.

“It is crucial that we see the job through, meet our mandate to return inflation to its 2% target, and provide the environment of price stability in which the UK economy can thrive,” said Bailey in his speech, admitting that inflation was “unacceptably high”.

So far, the government has relied on the central bank to return inflation to the mandated target. The main tool in the BoE’s arsenal is raising interest rates – which it has done 13 times since December 2021 – increasing the cost of borrowing from 0.1% to its current level of 5%.

But with inflation remaining at a stubborn 8.7% in May, the wisdom of the BoE’s strategy has been questioned by some economists.

The Week takes a look at five options available to the UK.

Raise rates again and risk recession

In May, Chancellor Jeremy Hunt said he was comfortable with the central bank doing whatever was needed to bring down inflation, even if that could cause a recession, telling Sky News: “Yes, because in the end, inflation is a source of instability”.

The power to raise interest rates lies with the Bank of England. But the markets are predicting that interest rates could climb to a high of 5.5% by the end of the year, despite rates already being at their “highest level since the middle of the global financial crisis in 2008”, said Politico.

Make changes to tax and spending

One “very unpalatable” option for the government is to raise taxes or to raise taxes and make cuts to public spending – essentially a second round of austerity.

Laura Suter, head of personal finance at AJ Bell, told The Mirror the government could “opt to raise taxes, cut Government spending or cut back on the cost-of-living payments” to “reduce household spending further”. But with households already at “breaking point” this would be a “politically unpleasant” move ahead of a general election.

A policy paper presented to HM Treasury last autumn made the argument for the UK to address inflation through fiscal policy rather than relying solely on interest rate adjustments. The paper, by Cambridge economics and history fellow Charles Read, highlighted the potential risks of rapidly raising interest rates, including the possibility of a financial crisis in the shadow banking sector.

Instead, fiscal policy changes such as reducing value-added tax (VAT) could directly impact prices without destabilising the banking sector, he suggested. Funding these measures could involve eliminating tax benefits primarily benefiting the wealthy, such as the capital gains tax discount.

Quantitative Tightening

Another tool the BoE could consider is increasing its quantitative tightening (QT) programme as a means to reduce demand and control inflation.

During the pandemic, the central bank employed quantitative easing (QE) by purchasing bonds and injecting money into the economy, leading to lower interest rates and increased inflation.

Alice Haine, a personal finance analyst at Bestinvest, suggested to The Mirror that if QE was “so effective at stimulating the economy” then QT could “have the reverse effect”. The central bank could accelerate the pace of reducing its government bond holdings through QT, she suggested.

Price controls

This has been a “more successful tack” taken by France, after President Emmanuel Macron capped how much state energy companies could charge their customers last January, with the government subsidising the financial gap, said The Guardian.

The controls were subsequently lifted when gas and electricity prices began to fall, leaving inflation in France at “almost half the rate” seen in the UK in 2022.

Lower energy prices in Europe have eased overall price pressures, but the cost of food has continued to “soar”, said the Financial Times (FT). Countries such as Croatia and Hungary have introduced food price caps, while France has negotiated a “looser agreement” with food retailers to offer essential items at the lowest price possible.

The UK could consider targeting producers and retailers with price controls to tackle the food inflation rate – a major driver of overall inflation – suggested The Guardian, but it would be “difficult to monitor prices and impose caps in the internet age”.

Give up on the 2% target

It would be a “radical idea” but central banks like the BoE and the Federal Reserve could give up on their 2% inflation targets, said Investors’ Chronicle. Although the BoE makes its case for “low and stable inflation” a 2% target is “relatively arbitrary”.

Economist Olivier Blanchard argued in a 2010 International Monetary Fund paper that policymakers should consider a higher target of 4%, which would give central banks more room to react to economic shocks.

However, the FT’s chief economics commentator Martin Wolf argued that the UK shouldn’t give up on the 2% target, saying “if a country abandons its solemn promise to stabilise the value of the currency as soon as it becomes hard to deliver, other commitments must also be devalued”. Doing so may lead many, both at home and abroad, to conclude that the UK “is unable to keep its promises when things get tough”.

Rishi Sunak has blamed the high number of fixed-rate mortgages for his government’s failure to bring down inflation.

Speaking to the Commons liaison committee yesterday, the prime minister claimed that the preponderance of homeowners on multi-year deals was the reason why inflation has been “proving more persistent” than anticipated.

But experts don’t all agree with the PM. Many argue that the UK’s stubborn inflation is due to a combination of factors, many global rather than national, which have been exacerbated by the fact that many economists and central bankers “were late to spot just how big a problem this wave of inflation would prove,” the Financial Times (FT) said.

Critics immediately responded that the prime minister’s comments were not only false, but “tin-eared” in their lack of sympathy for struggling mortgage holders.

Sarah Olney, the Liberal Democrats’ Treasury spokesperson, said: “Homeowners on the brink are facing yet more mortgage misery, while Rishi Sunak’s comments get more tin-eared by the day.

“It shows this Conservative government is just totally out of touch. Conservative ministers sent mortgages spiralling through all their chaos and incompetence. Now they are refusing to lift a finger to help”, Olney said.

What did the papers say?

The reason for inflation’s persistence in the face of aggressive rate rises is down to a “tight labour market, shifting housing market trends and the fragility of the global economy”, said the FT, but it is important to remember that monetary policy “always comes with a lag”, taking around a year and a half for the impact of a single rate increase to “fully seep through into spending patterns and prices”.

Monetary policymakers only began raising rates under a year and a half ago in the US and UK, and under a year ago in the eurozone, the paper said, so it is not surprising that we have yet to see much impact.

Regardless, the UK remains an outlier, said City AM. Britain is now the only rich country where inflation is rising, signalling that the Bank of England’s series of interest rate rises “have been less effective than its peers”, the paper said, citing new data out yesterday.

According to the Organisation for Economic Co-operation and Development (OECD), inflation across G7 nations fell to 4.6% in May, down from 5.4% in April. In the UK, meanwhile, inflation rose to 7.9% in May from 7.8%.

While it is true that most of the world experienced economic fallout from Covid-19 and the war in Ukraine, in the UK “this has been exacerbated by Brexit and 13 years of government austerity measures”, said Open Access Government.

As a result, the scale of the crisis here in Britain is “far worse when compared to most of the OECD countries”, the site said, “and certainly among those in the group of G-7”.

Additionally, there is the prospect of greedflation as “banks, oil companies and many companies in food supply chains are very clearly increasing their absolute levels of profit, and their profit rates,” as interest rates increase, tweeted political economist Richard Murphy.

Murphy’s assessment is that increasing interest rates is in fact an inflationary act with the Bank of England’s assessment appearing to be “based on what economics textbooks say, and the relationship between economics textbooks and reality ceased a long time ago”. Murphy added that a recession now seems to be inevitable as the Bank “has always wanted a recession to control inflation”.

What next?

Numerous economists agree with the prime minister’s suggestion that the effects of the Bank of England’s rate increases are taking longer to feed through to the economy due to the prevalence of homeowners on fixed mortgages rather than floating contracts.

Those who do say we may see inflation turn a corner soon, City AM said, because at the start of 2024 millions of mortgage owners are set to roll on to new deals with much higher rates, which could help bring down inflation by “eroding their spending power”.

There is a further risk that the longer lags from the rate rises,the more the Bank of England is at risk of being “egged on by the markets into raising rates in response to figures that are disappointing”, which could result in “overkill and further damaging the economy, perhaps very seriously”, said David Smith, the economics editor of The Sunday Times.

But the broader problem, not just in Britain but around the world, may simply be that central bankers raised rates too late, said the FT. Their initial insistence that inflation would prove short-lived led to delays which “may have made inflation all the more difficult to vanquish”.

The risk now is that high inflation becomes the norm, according to the Bank for International Settlements (BIS). Claudio Borio, the head of BIS’s monetary and economics unit, warned last year that he was concerned that “inflationary psychology” was setting in.

With inflation remaining stubborn, the future looks bleak, said Jennifer McKeown, chief global economist at Capital Economics. And the ultimate effect will be that higher rates “push most advanced economies into recession in the months ahead”.

The UK’s economy shrank by 0.3% in March, with the first quarter of 2023 seeing “sluggish growth” of 0.1%, placing the UK once again towards the bottom of the league table of developed economies.

The figures come less than 24 hours after an admission by the Bank of England that it does not expect inflation to fall to its 2% target until 2025.

The UK’s 10.1% inflation rate is the worst in the G7 club of rich economies, said The Times, leaving many wondering what is making the UK economy so uniquely poor.

What did the papers say?

Car sales and the retail sector had a “bad” March, said the BBC, with poor weather and industrial action also pointed to by some as being behind the month’s poor figure.

“Strikes and the weather are factors here,” said the BBC’s economics editor, Faisal Islam, “but there is no denying the sluggish pattern that has persisted for a year now, as energy prices have risen.”

He pointed out that, on a quarterly basis, the UK economy has “still not regained all the ground lost since the pandemic and Brexit”.

Inflation is being kept so high by the “rising cost of services since the pandemic, increasing energy costs caused by the war in Ukraine, and record food and clothing prices”, said The Times.

Overall inflation remains stubbornly high “largely because food inflation, running at almost 20%, is coming down more slowly than predicted”, wrote Larry Elliott, economics editor of The Guardian.

But why are food costs so high? Supermarket bosses blame “meddling ministers” after they imposed “eye-watering” costs on the industry, said The Telegraph.

The bosses of Britain’s biggest grocers told John Glen, chief secretary to the Treasury, that “onerous regulation covering everything from recycling to border checks was making the weekly shop more expensive”.

Some are blaming Brexit, wrote Richard Partington, The Guardian’s economics correspondent, as it has “added to delivery times and costs for UK imports, a factor likely to be passed on to consumers in the shops”. In addition, a “lack of available staff in many sectors of the economy is forcing companies to offer higher wages to recruit or retain employees”.

Meanwhile, Duncan Simpson, executive director at the Adam Smith Institute, a think tank, told The Telegraph that the “failing Bank of England” was to blame. “Years of low rates and printing money has led to sky-high inflation,” he said. “Britons are now reaping what the Bank has sown.”

However, said the Financial Times, the Bank’s governor, Andrew Bailey, has criticised “the language of blame”, saying the Covid pandemic and the war in Ukraine were events that had pushed up inflation and which the Bank “could not have anticipated”.

What next?

Those looking for good news on the horizon will have their eyes fixed on two forthcoming announcements. The current second quarter could “see a fall” in GDP, warned Islam, due to the extra bank holiday for the coronation. This would leave people hoping for better news later in the year.

Meanwhile, the next consumer price inflation (CPI) figures are due to be reported on 24 May, and analysts will be hoping for better news there. “It will be significantly lower – probably in the region of 7% to 8% – purely because of base effects,” wrote John Stepek for Bloomberg.

Were inflation to remain stubborn, it could have political ramifications for the prime minister, who promised to halve it by the end of the year. “If I were Rishi Sunak,” wrote columnist Jack Kessler in the Evening Standard, “I would be concerned… most of all about inflation, which is looking awfully sticky.”

Although the Bank of England expects inflation to fall to 5.1% by the end of the year, that is significantly higher than the 3.9% in its February forecast, “placing the prime minister’s pledge to halve inflation at risk”, he added.

Meanwhile, there is a danger that further interest rate rises could write a plot twist into the story, said Elliott. The “higher rates go the bigger the risk that the economy will at some point crack under the strain”, he wrote, warning that “having been relentlessly too pessimistic in the past”, the Bank of England “could now be overly optimistic about the economy’s resilience”.

The Bank of England’s chief economist has come under fire for urging British people to accept they are poorer.

Warning that inflation risks remaining doggedly high, Huw Pill told a Columbia Law School podcast that “somehow in the UK, someone needs to accept that they’re worse off” and “stop trying to maintain their real spending power by bidding up prices whether through higher wages or passing energy costs on to customers”.

He added: “What we’re facing now is that reluctance to accept that, yes, we’re all worse off and we all have to take our share.”

His remarks have been condemned as a “red rag to the bull” and “absolutely outrageous”, said the BBC. But was he right?

What did the papers say?

The interview will “surely go down as one of the most tin-eared”, wrote Ben Marlow, chief city commentator for The Telegraph, and has “rightly” provoked a “backlash from across the political divide”.

“Almost everyone in some form, and through no fault of their own, is markedly worse off than they were 18 months ago,” said Marlow, so “why shouldn’t people demand more pay if their cost of living has gone through the roof?” To ask for a pay rise is “an entirely normal reaction to seeing everyday life become so eye-wateringly expensive”, he said.

Writing for The Independent, Ryan Coogan, who was brought up by a single mother in “one of the most deprived areas of the UK”, said that “for me, for my family, and for the people I grew up around, ‘accepting’ that we’re poor has never been an option”.

“Throwing our hands up and saying ‘you got me, Huw, I guess this is just my life now’ is unacceptable,” he said. “Even if you can’t improve your lot in any meaningful way, you have to fight like hell to. Because if you don’t, what’s the alternative?”

Reporting from a community centre in Wolverhampton, the local authority with the highest fuel poverty rate in England, Jessica Murray of The Guardian said the economist’s “choice of language has riled those who come face to face with the reality of the cost-of-living crisis on a daily basis”.

Pill “isn’t going to win a popularity contest”, but he is right, said Ross Clark for The Spectator. “In an economy which is stagnant, where productivity is flat”, it “ought to be obvious that we can’t all have a real-terms pay rise”, he argued.

Clark added that “certain groups of workers” can have a pay rise “at the expense of others”, or “we can all have a nominal pay rise”, but inflation “ensures we cannot have the economic equivalent of a perpetual motion machine” because “if wages go up in a stagnant economy, prices will rise to match”.

What next?

Behind Pill’s remarks is a fear that inflation, rather than falling this year as previously predicted, might remain at its current level. Economists at the Bank of England are “worried” that “as workers try to bid up their wages to protect their finances from inflation and businesses raise prices to shield profit margins”, high inflation will “become a permanent fixture of the UK economy”, explained City A.M..

In March, inflation in the UK dropped by less than expected, to 10.1%. In contrast, annual price growth in the eurozone is 6.9%, and 5% in the US. This “extra stickiness” in the UK’s inflation is “linked to a few factors”, said the Financial Times. Energy prices have been “the driving force behind European inflation” and “the plunge in wholesale natural gas prices, and thus the decline in inflation, is filtering through faster in some EU countries compared with the UK” partly due to differences in how consumer energy prices are set.

Britain’s underlying inflation is higher than in many advanced economies, it added, “in part down to a unique set of factors causing labour shortages, including early retirement, sickness and a change in immigration rules post-Brexit”. Nevertheless, predicted the paper in a leader comment, “prior interest rate increases will increasingly filter through, weigh down demand, raise unemployment, and ease price pressures”.

“Barring another big energy price shock”, the UK’s cost-of-living pressures “should be easing over the coming year,” agreed Mehreen Khan, economics editor, and Oliver Wright, policy editor, in The Times. Inflation will “automatically drop from March” as “the rate of annual price increases will no longer include the sharp spikes in gas and oil prices recorded last year”.

However, they added, “even on current trends”, the Office for Budget Responsibility does not expect incomes to have recovered to 2019 levels until 2028 at the earliest.

“Pill’s comments about the UK being poorer are indisputably true,” they said, but the idea of accepting this is “out of step” with the Bank’s own analysis that “wage pressures will subside from the second half of the year”.

The chancellor has warned that “we are not out of the woods” despite new figures showing that the UK narrowly avoided falling into recession in 2022.

The economy flatlined in the final three months of last year, following a drop of 0.3% between July and September, meaning the UK is not technically in recession – which is defined as two consecutive quarters of economic decline.

“The fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared,” said Jeremy Hunt.

However, economists and commentators warned that the outlook remains bleak and that even if the UK has not entered a recession yet, for many it will still feel as if it has.

What did the papers say?

Britain has avoided a recession “in the least glamorous way possible”, wrote Kate Andrews for The Spectator, because “it is not a story of growth, but a story of stagnation, that has kept the dreaded label of ‘recession’ at bay”.

There is “no guarantee that people feel better off”, she added, because “with real wages taking such a hit, many will feel as though we’re in recession anyway”.

“Whether we’re ‘technically’ in a recession isn’t actually so important,” said Politico’s London Playbook, because “when such small changes are involved, a plus sign is not a conveyor belt of milk and honey, any more than a minus sign is Armageddon”.

The National Institute of Economic and Social Research told the newsletter that “this year will feel like a recession for many, regardless of the data”. It added that “a focus on the economic crisis faced by most of the British population, rather than technicalities, offers a more insightful perspective”.

Political economist Richard Murphy agreed. “Who cares if we are not in a technical recession if millions of people cannot make ends meet, heat their homes, pay the rent or mortgage and feed their children?” he asked on Twitter.

Reuters put the data in a global context, noting that the UK’s output in the fourth quarter was still 0.8% below its pre-pandemic level, “in sharp contrast to other major advanced economies which are now above their pre-pandemic size”.

Despite the good news of a recession averted, City AM noted that the markets were un-buoyed: the FTSE100 index was trading slightly lower, down 0.24% this morning.

What next?

The Bank of England is still expecting a recession to occur sometime in 2023 but believes that the period of negative economic growth will be shallow and shorter than previously predicted.

Most analysts agree. Paul Dales, chief UK economist at Capital Economics, told the Evening Standard: “Given that the drags from high inflation and high interest rates are very large, we still think the economy will enter a recession this year.”

And Jeremy Batstone-Carr, from Raymond James Investment Services, told the Daily Express that “we are still in for the downturn which so far has been barely kept at bay”.

Although “there is greater hope that a downturn may never materialise at all or could be shallower or much more short-lived than initially feared”, Alice Haine, personal finance analyst at Bestinvest, told The Sun, the economy is “not out of the woods yet”.

A “milder recession” would mean that “unemployment rises more slowly, wage growth stays strong and domestically generated inflation falls at a slower pace than expected”, Thomas Pugh, an economist at RSM UK, told This Is Money.

However, he added, this could in turn be bad news for homeowners as it “could result in the Bank of England raising rates by more than expected”.

Rather than the economy going into recession, it may just remain flat, argued one pundit. Instead of “doing the timewarp and bracing for a recessionary return to the seventies, sparked by energy shocks, soaring inflation and industrial strife”, Susannah Streeter, head of money and markets at Hargreaves Lansdown, told the Daily Mail, “we could be heading for an early noughties-style period of stagnation”.

Pension funds are facing a “cliff-edge” after the Bank of England (BoE) warned that its emergency intervention in the UK’s debt market will come to an end on Friday.

BoE governor Andrew Bailey had been urged to extend the central bank’s multi-billion-pound bond-buying programme, which has been propping up pension funds. But in a “blunt” statement on Tuesday evening, he told investors they had three days to prepare for the support to end, said the BBC.

Speaking to the BBC after his statement, Bailey said that pension funds had “an important task” to ensure they were resilient. “I’m afraid this has to be done for the sake of financial stability,” he added.

The pound dropped sharply against the dollar following the announcement, hitting $1.09 for the first time since the Bank announced its emergency intervention on 28 September, as investor hopes for further intervention were “dashed”, said the broadcaster.

But the Financial Times (FT) suggested the BoE could be prepared to extend the emergency bond-buying scheme “if market conditions demanded it”. Pension funds have said that they need more time to “shore up their derivative strategies” before central bank support ends, to avoid a repeat of the sell-off that forced the Bank to intervene last month, said the paper.

What did the papers say?

“Final salary pension schemes running out of cash was not a crisis that many people had predicted,” said the Investors’ Chronicle. The crisis was sparked late last month when chancellor Kwasi Kwarteng announced a series of unfunded tax cuts in his so-called ‘mini-Budget’.

In the end it ended up as a somewhat larger fiscal event, with Kwarteng’s mini-Budget “sparking investor fears over the UK’s financial stability”, said the BBC. It resulted in a “major sell-off” in the bond market, leaving pension funds – which are major investors in government bonds – stuck in a “doom loop”, where they were forced to sell off more government bonds, reportedly leaving some pension funds close to collapse, according to Politico.

It was only when the BoE stepped in and pledged to buy up to £65 billion of government bonds, known as gilts, until 14 October that the “doom loop” stopped and pension funds “gained time to meet cash calls and stop the contagion from spreading”.

The problem originated from what are called liability-driven strategies (LDI), “a term that refers to investment strategies now commonly used by pensions to manage their liability risks” and which “typically include hedging against interest rate and inflation risks” by using government bonds as leverage, explained Investors’ Chronicle.

When the value of bonds fell, investment banks called on these LDI funds to put up assets or cash as securities for loans. Pension funds also began selling their liquid assets, including government bonds, forcing prices to drop even further. The BoE eventually stepped in to stabilise this “vicious circle”.

What’s next?

The BoE has indicated it is unwilling to become a “permanent backstop” for the City which “steps in whenever there is a bit of turmoil”, said The Guardian. This ultimately creates a “moral hazard” that encourages “risky behaviour”. Setting a time limit of the end of the week allows pension funds to “untangle their complex derivative positions, dust themselves down and get back to providing workers with their annual retirement incomes”.

But the BoE has “privately signalled to some bankers” – despite Bailey’s comments on Tuesday – that it could be willing to extend the emergency bond-buying programme past Friday’s deadline. The FT reported that “several bankers” had been briefed by the central bank that officials were closely watching whether LDI managers “have been able to build up enough cash reserves to enable their clients to meet margin calls” before deciding whether to extend support.

Ultimately, the drop in bond prices is likely to help pensions in the long run, said The Guardian. Once pension schemes have “succeeded in solving their liquidity issues”, it means the bonds they hold will “pay a higher rate of interest and over the longer term”.

But it is in the short term that pension funds could face difficulty, as schemes “face the choice of selling higher returning assets to keep their hedges in place, or jettisoning or reducing the protection of the hedging strategy”. If the latter were to happen, then it would “leave pensioners exposed to future swings in rates and inflation”, said the FT.

It’s not every day that the Bank of England is forced to step in and head off a “material risk to UK financial stability” with an emergency £65bn intervention in the bond market. But at least we got to understand what the acronym LDI stands for, said Alistair Osborne in The Times.

Little more than a week ago, to everyone beyond a few pointy-heads in the pensions industry, it would have been anyone’s guess. Large document imaging? Liquid damage indicator? Let’s do it? But then along came Trussonomics, and suddenly “liability driven investment” – and its terrifying potential impact on our pensions – became part of the lexicon.

Markets ‘barely dodged’ a collapse

By some accounts, markets “barely dodged a Lehman Brothers-like collapse – but this time with your mum’s pension at the centre of the drama”, said Alexandra Scaggs and Louis Ashworth on FT Alphaville. What on earth happened? In short, the huge sell-off of UK government bonds following the “mini-Budget” prompted a “massive move” in gilt yields (the interest rates paid on them, which move inversely to price).

The benchmark 30-year gilt yield “spiked” by an extraordinary 1.2 percentage points in just three days. Ordinarily, you might assume that pension funds, which are big investors in long-dated bonds, would profit from this. But their LDI arrangements – insurance policies intended to smooth the returns paid to pension holders – got in the way.

Falling bond prices “had the effect of forcing pension funds to sell gilts, to honour bets they had made that prices would not fall”, said The Times. “The more prices fell, the more they had to sell, threatening to send the market into a downward spiral.” It took the BoE’s vast intervention to halt it.

Few investors ‘had this on their crisis bingo card’

“The most interesting part of any crisis isn’t the blow-up that you expected – it’s the one you didn’t see coming,” said Cris Sholto Heaton on MoneyWeek.com. “Very few investors had this on their crisis bingo card.”

Yet the risks had been flagged, said Simon Foy in The Daily Telegraph. Lord Wolfson, the boss of Next, was so worried about the looming “time bomb” that Next wrote to the Bank in 2017 to raise the alarm. Yet it seems to have remained a Threadneedle Street “blind spot”.

With calm restored in bond markets – at least until the cliff-edge of 14 October when the Bank’s bond-buying stops – there have been calls for an inquiry, said Charlie Conchie in City AM. But the industry seems unbowed. PwC’s global pensions chief claimed fears of “a wave of insolvencies” were an “overreaction”.

Meanwhile, the biggest provider of LDIs, Legal & General, insisted the chaos had had a “limited economic impact on its businesses”. Analysts at UBS, however, warned that there was still a risk of a “meltdown”.

Prime Minister Liz Truss and her chancellor Kwasi Kwarteng are refusing calls for a U-turn after their radical tax-cutting “mini-budget” plunged the markets into turmoil this week.

The government’s controversial fiscal strategy, which included plans to implement some £45bn worth of tax cuts, prompted the pound to fall to an all-time low against the dollar and raised the prospect of further interest rate hikes from the Bank of England (BoE) to deal with spiralling inflation.

In a highly unusual move, the BoE was forced to announce a £65bn emergency intervention to avert an economic crisis in the wake of the mini-budget, buying billions of pounds’ worth of government bonds to prevent people’s pensions being put at risk.

Truss defended the plans in a round of broadcast interviews on BBC local radio yesterday, describing the mini-budget as “decisive action” that had to be taken in order to “get the economy moving”.

But both Truss and Kwarteng today met the government’s independent economic forecaster, the Office for Budget Responsibility, which has demanded a “rethink” of the government’s fiscal strategy, according to The Times.

Meanwhile, Labour is enjoying its largest poll lead since the Tony Blair years, after a YouGov survey found that 54% of voters would back Labour in a snap general election with only 21% supporting the Tories. The 33-point lead is the party’s highest in almost three decades.

To find out how closely you’ve been paying attention to the latest developments in the news and other global events, put your knowledge to the test with our Quiz of The Week.

Need a reminder of some of the other headlines over the past seven days?

• Two gas pipelines between Russia and Germany, Nord Stream 1 and 2, have been damaged in explosions, with several European leaders quick to claim that sabotage was a likely cause.
• An investigation into the death of Marc Bennett, a British travel industry boss, in Qatar has reportedly uncovered fresh evidence that he was detained and tortured by the country’s secret police in the final weeks of his life.
• Vladimir Putin’s plan to send 300,000 new conscripts to support his war in Ukraine is facing increasing resistance in Russia as anti-mobilisation protests spread across the country.

With the nation’s focus on the death of the Queen and accession of King Charles III, the spectre of imminent UK recession has slipped under the radar.

Amid the outpouring of grief for Her Majesty, it has “been easy to disregard the warning from economists that next Monday's funeral for the late Queen – an additional bank holiday, with workplaces and shops closed – will tip the UK into a technical recession”, wrote Allegra Stratton for Bloomberg.

“This must be the most dismal collision of economic analysis with national spirit,” added Stratton, who served as Downing Street press secretary under Boris Johnson.

The UK economy contracted by 0.1% in the second quarter of the year, and latest Office for National Statistics figures show that GDP climbed to just 0.2% in July – fuelling fears of a further decline in the third quarter, which would signal recession.

Will the Queen’s funeral be the tipping point?

Economists are warning that the closure of businesses nationwide for the funeral bank holiday, combined with the impact of the ten-day mourning period on consumer sentiment, “raises the risk of Britain’s already-faltering economy falling into a recession sooner than expected”, The Times reported.

According to the London Evening Standard, the combined cost to the UK economy of “funeral expenses, bank holidays and the coronation of King Charles III next year” could be £6bn or more. Experts estimated the hit to the economy of Monday’s bank holiday alone would be around £2bn.

The Bank of England last month predicted that a recession would begin in the fourth quarter of 2022, as businesses and families continue to struggle with steep price hikes after inflation hit a 40-year high in June.

Economists across the City are now revising their models as the Queen’s death adds “further uncertainty to forecasts”, said The Times.

Investment bank Panmure Gordon had expected that UK GDP would grow by 0.1% in the current quarter, but is now predicting -0.1%. Deutsche Bank also expects GDP growth to be either negative or flat, after previously predicting 0.2% growth.

What about Liz Truss’ energy plan?

The new prime minister suggested during her leadership campaign “that her economic agenda could avoid recession”, said Kate Andrews in The Spectator. “But one of the (many) gambles attached to these comments was what had already happened to the economy before she entered No. 10.”

Truss announced last week that energy bills for everyone in the UK would be frozen at £2,500 for two years, at a cost of around £150bn.

But some economists have warned that Truss’s energy support package “is unlikely to lift it out of its slump any time soon”, City A.M. reports.

“The disappointingly small rebound in real GDP in July suggests that the economy has little momentum and is probably already in recession,” said Paul Dales, chief UK economist at consultancy Capital Economics. “The government’s utility price freeze is unlikely to change that.”

Not everyone agrees, however. Bloomberg analysts Andrew Atkinson and Philip Alrick wrote that “we think the government’s £150bn energy support package means the recession won’t last over the winter”.

What is the long-term outlook?

Looking further ahead, the picture becomes even less clear. Truss’s “plan is likely to curb inflation but force the Bank of England to keep interest rates higher for longer, potentially leading to a contraction next year”, said Stratton on Bloomberg.

At 1.75%, interest rates are currently at their highest level since December 2008. The Bank’s Monetary Policy Committee had been widely expected to further raise rates to up to 2.25% this week, but the decision has been pushed back to 22 September following the Queen’s death. The Bank has already lifted borrowing costs six times in a row.

US investment bank Goldman Sachs has predicted that rates may reach as high as 3.25% by the end of this year, while consultancy Capital Economics is a predicting a peak of 3%.

And some experts have predicted that interest rates may be hiked to at least 4.25% by the middle of 2023, in a bid to prevent the bill for energy support from stoking inflation – heaping further pressure on consumers.

The UK is suffering higher inflation than any other G7 country as price rises reach a 40-year record.

Britain’s consumer price inflation hit 10.1% in the year to July, the “biggest leap” since 1982 and “well ahead” of the rate in fellow members of the group of advanced economies, said The Daily Telegraph.

The double-digit increase “exceeded economists’ expectations” that the UK rate would “edge up” to 9.8%, said the Financial Times, and “highlights the difficult task” that the Bank of England (BoE) faces in trying to tackle the inflation crisis.

What is driving inflation?

High food prices were the “main driver of the spike”, which rose at an annual rate of 12.7% in July, up from 9.8% in June, said Politico.

According to figures from the Office for National Statistics (ONS), the annual rate of inflation for food and non-alcoholic beverages has not been this high since August 2008, during the global financial crisis, when it reached 13.2%.

The CPIH (the Consumer Prices Index including owner occupiers’ housing costs) has also risen by 8.8% in the 12 months to July 2022, up from 8.2% in June. The largest contributor to that increase came from electricity, gas and other fuels, transport, and food and drink, said the ONS.

The increases are set to “pile more pressure on consumers already facing the steepest real pay cut on record”, said The Telegraph, which added that the rises “come ahead of another jump in energy bills this winter”.

How does the UK compare with the G7 and rest of Europe?

While “all advanced economies” have seen a rise in inflation, it has been “stronger in the UK than in other G7 countries and most European nations”. said the FT. This is due to the UK’s “greater use of gas, the underlying strong growth in spending last year, pay growth in the private sector rising above 5% and the ease with which companies expect to pass on higher costs to customers”, explained the paper.

In other G7 nations, American and German inflation stands at 8.5%, while Italy’s rate is 8.4%, Canada is at 7.6%, France on 6.8%, and Japan on 2.4%.

Speaking to The Telegraph, Martin Beck, chief economic adviser to the EY Item Club, said that the UK is facing a combination of the pressures found in America, as well as those in the eurozone, ultimately resulting in higher inflation than either.

Beck explained that the UK was suffering from both America’s “excess demand for workers” combined with Europe’s “massive energy bill issues”, which have combined to give us the “worst of both worlds when it comes to inflation”.

“Different countries have different policies in place when it comes to holding down energy bills. The UK approach is more to give households direct support, like cash, when countries like France have done more in holding bills down directly,” Beck added.

With inflation set to peak at 13% later this year, according to predictions from the BoE, financial experts expect the Bank to raise interest rates again, with another 0.5% hike expected next month.

Debapratim De, a senior economist at Deloitte, told Yahoo Finance: “With inflation above 10% and widely expected to rise further as energy bills increase, base interest rates look fairly low at 1.75%. We expect swift action from the BoE with the base rate potentially doubling by this time next year.”

The Bank of England governor Andrew Bailey recently received an email from a member of the public begging him to “please, please, please be more cheerful”. The best he could come up with, said The Economist, was: “We are not doomed, far from it. But we are in difficult times.” He’s not kidding. For the first time since polling began in 1999, more people are “dissatisfied” with the Bank’s performance than satisfied. And “the political environment” has become ever more “hostile” – with the frontrunner to be the next PM, Liz Truss, attacking the Bank for excessive money-printing and “suggesting that its mandate needs toughening up”.

Even by his own standards, Bailey delivered “an unusually apocalyptic economic outlook” as he announced the biggest interest-rate hike for 25 years, said Marcus Ashworth on Bloomberg. After the Truss camp accused the Bank of “talking Britain into a recession”, tensions were further fuelled by Business Secretary Kwasi Kwarteng, who warned that “something has gone wrong” on Threadneedle Street, said Tony Diver in The Daily Telegraph. Under plans being floated, the Bank could be told to abandon its 2% inflation target and ordered to target nominal GDP (the size of the economy in cash terms) instead. It sounds a minor tweak, but it actually spells a “radical” overhaul.

There’s no doubt the BoE needs it, said Ambrose Evans-Pritchard in The Daily Telegraph. Whatever new model Truss suggests “could not be worse” than the “dog’s dinner of corrupted New Keynesian fallacies” currently dictating BoE policy. By worshipping at the altar of “inflation expectations”, and ignoring money supply signals, the Bank wildly underestimated the inflation danger. Now it is compounding the error with “a double-decker” interest-rate rise just as the inflation cycle has “already rolled over” and the threat is receding.

Yet there are actually plenty of reasons for maintaining the status quo, said Valentina Romei in the FT: not least the fact that the Bank has a pretty good long-term track record of hitting its mandated inflation target. Moreover, any call for a review by the Government is likely to raise “questions about the BoE’s independence” – and that would certainly worry investors. Truss’s “frankly bizarre suggestion that the Bank should target money supply makes little sense to anyone who remembers the lesson of the 1980s”, said The Economist: namely, that “the relationship between money supply and inflation is too unstable for it to work”. In circumstances like these, “a sensible politician ought to be grateful” for the Bank’s monetary policy independence – “and leave it well alone to take unpopular decisions”.

The Bank of England said yesterday that the UK will fall into recession as it unveiled the biggest rise in interest rates for 27 years.

In an alarming set of forecasts for the economy, the bank said inflation would surge above 13%, causing the worst squeeze on living standards for more than 60 years.

It predicted that the UK would enter a recession in the last three months of this year, and that it would turn into the longest downturn since 2008. The economy is expected to “keep shrinking until the end of 2023”, said the BBC.

What the editorials said

“There is little uncertainty about what lies in store in the short term,” said The Times. The rise in interest rates and soaring energy prices will cause “the steepest decline in living standards on record, with household disposable income forecast to fall by 3.7% over the next two years”.

The Telegraph said that the Bank of England’s outlook is “grim” and “it is possible that even the Bank’s latest forecasts could underestimate the misery to come”. The Daily Mail agreed, warning its readers that “even tougher times are hurtling down the track for British families”.

The Guardian questioned the effectiveness of the Bank’s move to hike rates, arguing it will “achieve precisely zero” in bringing down the price of wheat or oil on global markets. “All higher rates do in this scenario is add to the economic pain by making mortgages and credit card bills another worry for families already stressed about paying for energy and food,” it said.

What the commentators said

“If global energy costs remain where they are,” said Faisal Islam, economics editor of the BBC, the recession “will then last the whole of next year, with inflation barely below 10% even in a year's time”. This would not only affect householders but those in power, too. “Make no mistake, a forecast such as this would mean a wrecking ball to the forecasts for government borrowing,” he added.

The situation will make keeping a roof over your head harder, said Vicky Spratt, housing correspondent for The i newspaper. She wrote that rising interest rates mean we can expect “rent rises, rising monthly mortgage repayments and higher interest rates for first time buyers”.

What happens next for the UK economy will depend largely on who wins the Conservative leadership election, said ITV’s Robert Peston. “For Tory members, the choice for their leader and the UK's prime minister would be between lower immediate taxes with Ms Truss or lower immediate interest rates with Mr Sunak,” he wrote.

However, he added, “for the avoidance of doubt, neither Mr Sunak or Ms Truss are promising anything that would persuade the Bank of England the UK can escape a significant recession, a significant contraction in national income, this year”.

Are there any positive signs?

Glimmers of hope are few but those worried by rising interest rates might be encouraged by the news that market expectations of future rises are falling.

Writing in The Spectator, Ross Clark noted that the forward yield curve showed that while in June markets were expecting the Bank of England’s base rate to peak at 3.59% in July 2023, this week markets are expecting rates to peak at 2.85% in June 2023 – “quite a chunky downwards revision”.

And some prices are already beginning to fall. The Guardian said earlier this week that the trend in underlying inflation – which excludes fuel, food, tobacco and alcohol – is “encouraging”, with core inflation falling for two months in a row from 6.2% in April to 5.8% in June.

There are also suggestions that the UK will recover quickly once the crisis eases. “Our economy is in far better shape to bounce back once this global crisis is over,” said the Daily Mail, “and with unemployment low, we should be better placed than most European countries to recover”.

The last day to spend old £20 and £50 paper notes is fast approaching before they are replaced by the new polymer versions.

“Check your pockets, wallets, and the back of your sofa,” said the Evening Standard, warning that there are fewer than 100 days left to use the old notes.

According to the Bank of England, the majority of banknotes have been replaced but there are still more than £6bn worth of paper £20s and £8bn worth of paper £50s in circulation. After 30 September, these will no longer be legal tender.

Why are £20 and £50 notes changing?

The latest polymer banknote to be issued was the £50 note “featuring Bletchley Park codebreaker and scientist Alan Turing” last year, said Sky News. “The Turing £50 completed the Bank’s ‘family’ of polymer notes, with all of its denominations – £5, £10, £20 and £50 – now printed on polymer.”

The first plastic £20 note, featuring artist JMW Turner, was issued in February 2020. The £10 polymer features author Jane Austen, while the £5 shows war-time prime minister Sir Winston Churchill.

Sarah John, chief cashier at the Bank of England, said the change was an “important development” because “it makes them more difficult to counterfeit”. The plastic notes “are also more durable – something you’d know if you are in the minority of nostalgic people who still use them”, said City A.M.

What should you do with old notes?

Old notes can be spent on goods and services in the usual way up until 30 September. Or, “if you’re not feeling like it, given we’re living in a cost-of-living crisis with inflation on the rise, feel free to deposit them at the bank or at the post office”, added City A.M.

What happens after 30 September?

The old notes will still be accepted as a deposit into an account by “many banks and some post offices”, said the Evening Standard.

The Bank of England will also exchange them in person at its premises in London or by post.

The Bank of England has warned that the UK is expected to face its longest recession since the global financial crisis.

In its sixth consecutive increase, the Bank yesterday raised interest rates by 50 basis points to 1.75%, the single largest rise since 1995. In its Monetary Policy Summary for August, it said GDP growth is “slowing”, and the latest gas price rises have led “to another significant deterioration in the outlook for activity” in the UK and Europe.

The UK is expected to experience a recession in the final months of the year, as inflation rises above 13%. Households’ post-tax income will “fall sharply in 2022 and 2023, while consumption growth turns negative”, the report said.

Governor of the Bank of England Andrew Bailey told BBC Radio 4’s Today programme that the “real risk” it is responding to “is that inflation becomes embedded and it doesn’t come down in the way that we would otherwise expect”.

Andrew Sentance, a member of the Bank’s rates-setting committee during the 2008 financial crisis, told BBC Breakfast that the UK is heading for a few years in which “household incomes in real terms are squeezed more severely than we’ve seen in other times since the Second World War”.

What could tip the economy into full recession?

“Multiple factors in play have contributed to the current financial crisis facing the UK,” said Unbiased. “In isolation, they are big challenges but not a disaster. However, a combination of the successive lockdowns in the UK slowing down the economy, along with Russia’s invasion of Ukraine damaging the international market price of gas and oil, mean that the current volatile climate could be set to take another downward turn.”

“The data chimes with widespread warnings that the economy faces a prolonged period of low growth, caused by a cost of living crisis that is only forecast to intensify in the months ahead as energy bills rise to stoke inflation further,” reported Sky News.

City A.M. said: “Firms have retrenched in response to Russia’s invasion of Ukraine, high inflation and ongoing supply chain disruption souring the trading environment, dampening the UK’s growth prospects.” The spike in energy prices as a result of Russia’s restrictions on gas “will exacerbate the fall in real incomes for UK households”, the Bank said yesterday.

Consumers are rapidly reducing their spending in the face of a “once in a generation” cost-of-living squeeze, George Lagarias, chief economist at accountancy firm Mazars, told The Guardian.

“For an economy where consumption is so central, the signs going forward are disconcerting. Technically, we may not yet be in a recession, but for many consumers it certainly feels like one.”

What would a recession mean for the country?

Two successive quarters of decline in gross domestic product (GDP) may sound abstract, but a recession has real-life consequences on everything from job prospects and housing to investments.

“Businesses are likely to try and save money during a recession, meaning jobs could be lost, and with spiralling inflation and energy price hikes, wages may be unable to cover the cost of everyday essentials,” said Unbiased.

The global financial crisis of 2008 resulted in UK unemployment levels reaching 10%. However, “no one can predict the severity or the length of [a recession], making it difficult to outline the tangible impact on UK workers”, said the financial advice site.

Forbes reported that with more people unable to pay their bills during a recession, “lenders tighten standards for mortgages, car loans and other types of financing”. This means you may need a better credit score or a larger down payment to qualify for a loan than would be the case during more normal economic times.

Investments in assets such as stocks, bonds and property can lose value in a recession, cutting income and savings, and denting retirement funds too, it added.

As well as the effect on lower-skilled and lower-paid workers, recessions “also impact young people disproportionately, as we saw from the recession in 2008”, said HuffPost UK.

Are there any positives?

“There are arguments that recessions are part and parcel of the economic cycle,” said the i news site. “They can lead to a clearing out, or what some economists call a reset or ‘correction’.”

This can have knock-on positive effects for some people or sectors. High inflation, for example, such as that seen in the early 1980s, usually leads to higher interest rates, which is good for people with savings.

The recession of the early 1990s, meanwhile, led to lower house prices and interest rates, allowing Generation X and younger Babyboomers to get on the property ladder.

What about the rest of the world?

The risk of the US and Europe “sliding into recession” has “picked up sharply” according to economists who spoke to the Financial Times ahead of the G7 summit in Bavaria this weekend.

Holger Schmieding, chief economist at Berenberg Bank, told the paper that the balance had now “tipped” in favour of an economic contraction next year in the US and Europe, arguing that “what used to be a rising risk has now turned into the base case”.

The FT said that economists had become “increasingly pessimistic” over the chances of a recession, following the Federal Reserve’s decision to increase interest rates to counter “soaring” inflation, and as concerns mount over Europe’s gas supply in the coming winter. The International Energy Agency warned this week that Europe must plan now for winter without any Russian gas exports.

“US recession risks are uncomfortably high and rising,” said Mark Zandi, chief economist of Moody’s Analytics, who spoke to the paper. “I would put them at 40 per cent in the next 12 months, and more or less even odds over the next 24.” Zandi added that Europe was in an even worse situation.

“To avoid recession, the global economy needs a bit of luck and for the economic fallout from the coronavirus pandemic and Russian aggression to wind down quickly, along with some deft policymaking by the Fed and other central banks,” he said.

How long will it last?

The Bank has set off “the most piercing of warning sirens”, said the BBC’s economics editor, Faisal Islam. “The big shock” is its prediction that a recession could last “as long as the great financial crisis" and be "as deep as that seen in the early 1990s”.

If global wholesale energy costs remain as they are currently, then the recession is expected to last the whole of next year, “with inflation barely below 10% even in a year’s time”. And with the Tory leadership contest still underway, Islam explained that this “is the sort of forecast that in other circumstances might have prompted an immediate emergency Budget”, but might instead “upend all the plans” the contenders have announced during their campaigns.

With the UK economy expected to shrink for more than a year, Islam described this as “a proper full fat recession”, and a “textbook example” of stagflation.

Inflation remains at historically high levels despite dipping slightly to 10.7% in November.

An “easing in the rise in petrol prices” has helped lower annual inflation rates which reached 11.1% in October, said the Financial Times. The figure was “better than an expected 10.9%” rate, said the paper, adding that some economists think that the inflation rate has “now probably passed its peak”.

Although smaller petrol price increases have contributed to a downward momentum, the Office for National Statistics (ONS) said this had been partially offset by continued sharp price rises in restaurants, cafes and pubs.

The dip in inflation will do little to help those feeling the bite of the cost-of-living crisis, as “soaring prices” see “low-income households struggle to afford basic supplies and energy bills”, said LBC. The latest figures from the ONS reveal a staggering rise in food prices, with costs rising by 16.5% from last year.

But the fall in inflation will, however, “ease pressure” on the Bank of England (BoE) as the central bank prepares to make its latest interest rate decision, said The Telegraph.

Experts believe the bank will raise its key interest rates by half a percentage point to 3.5% – its ninth consecutive rise. But the rate rise could leave home-owners feeling the pinch, with the BoE’s Financial Stability Report predicting that the average mortgage repayments could surge by £3,000 a year.

What is inflation and how is it measured?

Inflation is a measure of the rate at which a range of prices rise over a given period of time.

In the UK, inflation is measured by the ONS, which tracks the prices of 700 everyday items known as the “basket of goods”.

The basket of goods is “constantly updated”, said the BBC. Items including tinned beans and sports bras were added in 2022, to reflect a “rising interest in plant-based diets and exercise”.

The price of that basket “tells us the overall price level”, or CPI, explained the Bank of England’s website.

To calculate the rate of inflation, the cost of the basket – the level of the CPI – is compared with the cost on the same date last year. The change in the price level over the year is the rate of inflation.

Why is inflation so high right now?

Britain’s official rate of inflation has been rising for a number of reasons, according to the BoE.

The UK is struggling with runaway prices after being “hit by a series of external shocks”, said ITV News. Difficulties in getting goods to customers as economies worldwide recover from the pandemic has pushed up the price of products, especially for imported goods.

The Russian invasion of Ukraine has also led to hikes in food and energy prices.

But the governor of the BoE said in a letter to the Treasury in September that “not all of the excess inflation can be attributed to global events”.

The Bank says inflation is starting to be generated domestically in the UK, as companies raise their prices and workers ask for higher wages, which in turn leads to higher costs.

Wages have risen at their “fastest rate in more than 20 years” but continue to “lag well behind the soaring cost of living”, said the BBC’s business reporter Daniel Thomas. Wages rose to 5.7% in the year to September, “the fastest growth since 2000”, but in real terms, wages fell by 2.7% because of soaring inflation.

What can be done to tackle inflation?

The “Goldilocks and the Three Bears analogy” is a useful tool when trying to understand why inflation is important, said HuffPost. If inflation is too low, economic growth is “cold” and the economy won’t grow. Too high, and the economy is too “hot” and will grow too quickly – leading to rocketing prices.

“Much like that third bowl of porridge”, the ideal inflation rate is around 2%, keeping inflation low and stable, which is “just right” for the economy.

The BoE’s “traditional response” to rising inflation is to raise interest rates, said the BBC. Although this can benefit savers, “some people with mortgages see their monthly payments go up”.

However, because much of the UK’s current inflation is caused by external factors, such as rising global energy prices, “there is a limit as to how effective UK interest rate rises can be in curbing inflation”, said the broadcaster.

Restricting prices – as with the energy price cap – to deal with “profit inflation” can also be “counterproductive”, wrote Will Dunn in The New Statesman, because it does “little to dampen demand”.

A change to tax may be the answer, he argued, with the current system favouring “the wealth accumulated from company profits” more than “income from work”. Not dealing with this problem “could cause a longer and deeper recession” for the UK.

People all over the world are feeling the effects of rising prices as the cost of living continues to rocket – but could the UK end up suffering the most?

While many countries are experiencing higher energy bills, supply chain disruption and the lingering effects of the pandemic, price pressures in the UK are “expected to be worse and longer lasting”, according to The Telegraph.

Kristin Forbes, a former member of the Bank of England’s Monetary Policy Committee, told the paper that “there’s about six factors that feed through into inflation and the UK hits every box”.

Exacerbating financial pain

The UK is set to experience a “toxic combination” of price drivers, said the paper, namely “an extremely tight jobs market, a plunging pound and higher inflation expectations”. And additional taxes on households being imposed by the government are also likely to exacerbate financial pain for many, “something few governments are daring to do at a time of soaring living costs”, said the paper.

Inflation is soaring and currently stands at about 7%, although the Bank of England (BoE) predicts it could reach as high as 10% this year due to rising energy prices. It’s a figure far from the Bank’s 2% target, a “key part” of its “price stability” mandate, said The Independent.

The BoE’s governor Andrew Bailey has said that the UK is in a “bad situation” with inflation, and has warned that a “very big income shock” could be about to hit British households. He added that due to the ongoing Russian invasion of Ukraine, there could also be an “apocalyptic” rise in global food prices.

Treasury select committee chair Mel Stride questioned whether Bailey had been “asleep at the wheel” when it came to rising interest rate pressures, but the BoE governor said that roughly 80% of forces pushing up inflation in the UK are being driven by global circumstances.

He added that the remaining 20% of issues affecting growth were due to the reduction in the workforce post-pandemic. “The scale and persistence of the fall has been very unusual,” said Bailey.

Crisis regions in Africa face famine

But while global price rises will certainly be sharply felt in the UK, the effects will be even more acute in already suffering “crisis regions” across Africa, said DW.

Teresa Anderson, the international climate policy coordinator at Actionaid, “told DW that many African economies are still reeling from the pandemic, climate change, humanitarian emergencies, or political and economic unrest” while the effects of the Ukraine war have only “exacerbated the situation”.

In Kenya, about “one-third of imported wheat comes from Russia and Ukraine”, said the paper, leading to rising bread prices and production costs. The 2022 Kenya Economic Survey found that most Kenyans are increasingly turning to their savings and loans to meet the rising cost of living.

Anderson also warned of “a famine of unimagined proportions”, especially in Zimbabwe, where daily living costs are rocketing. “In Zimbabwe, the price of gasoline has more than tripled, as has the price of cooking gas,” Anderson told the broadcaster. “The price of noodles has more than doubled.”

And in the Horn of Africa, parts of Kenya, Somalia and Ethiopia are already gripped by a hunger crisis thanks to an acute drought spanning three rainy seasons, leading to people “killing livestock, forcing people to leave their homes and increasing levels of child malnutrition,” said The Guardian.

The Russian invasion of Ukraine has only worsened the situation, “pushing up the price of staples such as wheat and sunflower oil, as well as fuel”, and leaving up to 20 million people facing hunger.

Patrick Watt, CEO of Christian Aid, has said that the war in Ukraine has turned the situation in the Horn of Africa into a “dire crisis”, with the people of Ethiopia, Kenya and Somalia “facing a crisis like no other”.

House price growth was already slowing in the build-up to the Autumn Budget, and prospects for higher property values seem further depressed now that the fiscal update is out of the way.

A “widely speculated” tax on homes worth above £500,000 was avoided, said Zoopla, which should “boost the market”. But property owners will soon have to contend with a new mansion tax from April 2028, and landlords with higher rates of income tax from April 2027.

Analysts expect these changes to have an impact on house price growth.

What’s happened to house prices?

Average property price growth has been “slowing since September amid Autumn Budget uncertainty,” said Estate Agent Today. The Land Registry house price index for the month showed average values fell by 0.6% between August and September, the first drop since April 2025. Other house price indices have registered lower levels of growth. The latest figures from Halifax show average property values were up just 0.6% between September and October 2025 and by 1.9% annually.

Despite clarity on property taxes in the Autumn Budget, house price growth still “looks set to continue rising at a slow pace”, said MoneyWeek.

How will mansion tax affect property prices?

Chancellor Rachel Reeves unveiled plans for a mansion tax, under a new High Value Council Tax Surcharge on homes worth more than £2 million.

Charges will range from £2,500 per year for eligible properties worth between £2 million and £2.5 million, and rise to £7,500 if your home is worth more than £5 million, with the tax rising by inflation each year.

This effectively introduces a “price limit on houses”, said Matthew Lynn in The Spectator and could “distort the market”.

Rightmove property expert Colleen Babcock suggested the tax would “disproportionately affect London and the south of England markets, which are still recovering from April’s stamp duty increase”. While there will always be a market for the highest priced, premium properties in the most popular locations, this tax is more “stifling than supportive of movement and growth” within the market.

Many of the affected owners are likely to be “asset-rich but cash-poor”, said The Times, so expect “plenty of serious appeals around the proposed revaluation exercise”.

What could cause a price crash?

There is no suggestion that house prices will crash, but the Office for Budget Responsibility has forecast that higher property income tax rates from April 2027 will “reduce house price growth by around 0.1 percentage points a year from 2028”.

Reeves announced that the basic rate of these property taxes will rise from 20% to 22% from April 2027. The property higher rate will increase from 40% to 42%, and the additional rate from 45% to 47%.

Furthermore, while fewer than 1% of properties in England are expected to be above the £2 million mansion tax threshold, it could have “knock-on effects for the rest of the market” if activity slows at the top, said ThisisMoney.

So what will happen to the price of your house?

Before the Budget, Savills was predicting growth of 4% in 2026, while Halifax estimated an increase of up to 3%. Some were more cautious – Zoopla forecast a “slight growth” of 1%, while Rightmove “downgraded” an initial estimate of 4% to 2%.

Post-Budget forecasts from the OBR have predicted that average house prices in the UK will rise from £260,000 in 2024 to just under £305,000 in 2030, growing at slightly below 3% in 2025 and averaging 2.5% annual growth from 2026, “broadly in line with average nominal earnings growth”.

The good news for homebuyers and also sellers is that the stamp duty system “remains intact”, said Zoopla. This means sellers won’t need to “adjust their asking prices to absorb an annual charge, preserving affordability for purchasers”, which may offer the market a “steadier footing”.

Meanwhile, the landlord income tax and mansion tax changes don’t come in until 2027 and 2028 respectively, added Rightmove, so movers and homeowners “have time to plan and assess what the changes might mean for them”.

This year marks the 25th anniversary of the Bank of England’s independence. But the celebrations may be muted in Threadneedle Street, said Russell Lynch in The Daily Telegraph. Uncomfortably for governor Andrew Bailey, the BoE’s silver jubilee coincides “with the greatest test of its credibility in a quarter of a century” – owing to an “inflationary tsunami” critics claim it failed to anticipate. Ahead of this week’s meeting, markets had priced in a 90% chance the Bank would be forced to make its first back-to-back monthly interest rate hike since 2004, taking the base rate from 0.25% to 0.5%. Many are betting on four more hikes this year. Bailey “bristled” when MPs on the Treasury Select Committee suggested he had got the “judgement call” wrong by not acting earlier. “But it is difficult to argue from a position of strength” when inflation, at 5.4%, is nearly treble the Bank’s 2% target, and could possibly run as high as 7% in April.

In fairness, Bailey wasn’t alone in failing to read the inflationary runes, said Alex Brummer in the Daily Mail. In fact, he was “the first central banker of out the blocks” – hiking rates in December when such measures are only now on the way in the US and Europe. And it isn’t really his fault that the British economy now faces a debilitating “double whammy of higher rates and higher taxes” that could knock the recovery for six; the greater blame lies with the Government’s insistence on ploughing ahead with its “fiscal squeeze”. Still, there’s no escaping the fact that the BoE has been “getting its forecasts badly wrong”, with “serious consequences for the management of economic policy”, said Andrew Sentance in The Times. The Monetary Policy Committee’s record has been “chequered” for a decade. “Diversity of debate” has faded away, communication is poor, and there’s been “no clear strategy for normalising UK monetary policy since the global financial crisis”. A “robust review” is urgently needed.

What matters most to the average Briton is what the rate rises will mean for their pockets, said Hugo Duncan in The Mail on Sunday. A hike to, say, 1.5% doesn’t sound too scary, but analysts warn it may come as “a shock” to about ten million British adults who have “never experienced base rates above 1%” – adding £1,300 a year to the cost of a typical mortgage. That’s why a more “measured” rate rise makes sense, said Chris Giles in the FT. The BoE will hope “to shock people into believing it’s serious about bringing inflation down, without having to prescribe the painful medicine of markedly higher borrowing costs”. Tricky to pull off.

Women who work from home risk damaging their careers now that staff are returning to the office, a top Bank of England official has warned.

During an event for women in finance hosted by Financial News, Catherine Mann, a member of the bank’s Monetary Policy Committee, said: “Virtual platforms are way better than they were even five years ago. But the extemporaneous, spontaneity — those are hard to replicate in a virtual setting.

“There is the potential for two tracks,” she added. “There’s the people who are on the virtual track and people who are on a physical track. And I do worry that we will see those two tracks develop, and we will pretty much know who’s going to be on which track, unfortunately.”

According to The Guardian, “women aren’t returning to work to the same extent as men, and when they are working, they are more likely to be working from home”.

“Difficulty accessing childcare and disruption to schooling because of the pandemic has led to more women continuing to work remotely,” the paper added.

Mann, who was global chief economist at Citibank from 2018 to 2021, also said the economic downturn caused by Covid-19 has hit women disproportionately.

Financial News said she described the pandemic as “very much a she-cession”. However, some have suggested that the inequality Mann was referring to runs deeper than where workers choose to do their work.

Responding to the comments, lawyer Dr Ann Olivarius tweeted: “With all due respect – it’s being a woman in an already unequal workplace that damages women’s careers.”

Dr Zubaida Haque, a former interim director of the Runnymede Trust, added in a tweet: “If it is the case that women who work from home will ‘damage their careers’” then “perhaps we should change how promotion works?”

British businesses last month reported “that 60% of their staff were fully back at their normal place of work, but proportions vary widely by sector”, reported Reuters.

“In professional services, 34% of staff are in the office, 24% are fully working from home, and 35% are doing a mix,” the news agency added, citing Office for National Statistics data.

In July, experts warned that the permanent switch to more home working following the pandemic could cause rising gender inequality in the workplace.

Joeli Brearley, founder of the charity Pregnant Then Screwed, told The Observer: “Those at home will look like they’re less committed to their job, they won’t have as a good a relationship with their manager, the person that can promote them and give them a pay rise.”

Young people have also been warned that working from home could damage their careers.

In August, Rishi Sunak told LinkedIn News: “I doubt I would have had those strong relationships if I was doing my summer internship or my first bit of my career over Teams and Zoom. That’s why I think for young people in particular, being able to physically be in an office is valuable.”

No central banker likes to be put on the spot about interest rate decisions – let alone be accused of “bottling it”. But that, said Phillip Inman in The Guardian, is the criticism being levelled at Bank of England Governor Andrew Bailey and his Monetary Policy Committee (MPC). Having signalled the need to tackle inflation with the first post-pandemic hike, they failed to make the move – prompting tumult in the bond markets and a 2% fall in the pound.

On the eve of the meeting last Thursday, investors had priced in “a full 0.15 percentage point increase”, taking the benchmark rate to 0.25%, said Moyeen Islam of Barclays Capital Securities in the FT. “The market’s surprise” when it didn’t turn up was evident in the “gyrations” of “policy-sensitive” five-year gilt yields, which experienced “the largest intra-day move” since the EU referendum. Traders were left reflecting that the Bank would be “smart to revisit its communication strategy”.

The Bank “blinked”, said Patrick Hosking in The Times. Despite “reams of evidence that inflation is on the rise and going to get worse” (the MPC raised its forecast to 5% in early 2022), it “couldn’t bring itself to pull the trigger”. Sure, there are reasons to delay: growth is slowing, cost pressures may indeed prove temporary, and there is still a risk of an “adverse” Covid development over the winter. But a small rate rise “would have sent a crucial signal that the Bank is serious” about containing inflation. Its credibility “is now on the line”.

The Bank appears to have “failed a test of political independence on interest rates”, said Ben Wright in The Daily Telegraph. At the very least, it looks cack-handed when compared with the US Fed. There was no market “tantrum” following last week’s announcement that the Fed would start reducing bond purchases. Chairman Jerome Powell made the move “without scaring the horses by being extremely transparent and consistent about his intentions”. What a contrast with Threadneedle Street.

For years, the world’s major central banks have moved in lockstep, said the FT. But “the pace of tightening” now splits opinion. While both the Fed and the BoE are signalling that “rates are likely to rise soon” (and the central banks of Canada and Australia have taken hawkish positions), the European Central Bank under Christine Lagarde is “resisting any shift in policy”.

Central banks face an “extraordinarily difficult task”, said The Economist, as they attempt to “normalise” monetary policy “amid sky-high asset prices, heavy debt levels and above-target inflation”. “Don’t rule out a bigger bond brawl.”

Economics expert John Whittaker of Lancaster University on why an imminent rise in interest rates is needed to keep the UK economy on track

The Bank of England was widely expected to slightly increase its official bank rate on 4 November, but it decided to stick to the all-time low of 0.1%. However, the Bank has made it clear that a rise will soon be needed, and the recent increases in mortgage rates indicate that lenders agree. So why the decision to hold off?

The Bank of England is well aware of the distress that higher rates cause for borrowers and, in particular, for the biggest borrower in the land: the UK government. At the current level of national debt, roughly £2trn, every rise in rates by one percentage point pushes up the interest paid by the government on its bonds by £20bn per year over the long term.

Higher rates also have a dampening effect on the prices of property and financial assets such as shares. Indeed, this is one way in which monetary policy is believed to work: if people feel less wealthy, they spend less and this relieves the pressure on inflation.

On the other hand, what’s bad for borrowers is good for savers. As rates rise, bank deposits will be better rewarded and even the finances of our beleaguered pension funds should begin to look more healthy.

But regardless of who wins and who loses from higher interest rates, inflation is on the rise. The Bank does not want to lose credibility by letting it rise too far before tightening monetary policy.

The inflation dilemma

After rising for the past 12 months, UK inflation is currently 3.1%, and the Bank expects it could even reach an uncomfortable 5% by early next year – much higher than its 2% target. Yet the Bank maintains the view that this higher inflation will turn out to be temporary, arguing that it will fall back as the post-Covid excess demand for goods subsides and supply bottlenecks are worked out. Against that, energy prices are likely to remain higher, driven partly by climate initiatives; and if employers continue to have trouble filling vacancies, higher wages will also tend to push up prices.

The bottom line is that nobody really knows where inflation is heading, so the Bank is wrestling with the usual dilemma: does it raise rates now to forestall future inflation, or does it hold rates down to avoid jeopardising the economic recovery while hoping that inflation will subside by itself? It can’t have it both ways.

This same dilemma is echoed in other countries. In the United States, the position is similarly troubling, with inflation already at 5.4% against a 2% target. Yet the Federal Reserve also continues to insist that the current high inflation is temporary, thereby justifying keeping its official interest rate (the Fed funds rate) near zero.

Yet the Fed is not completely sitting on its hands; it has announced that it will start “tapering” its quantitative easing (QE) programme, in which it is creating US$120bn (£89bn) a month to buy US government bonds and other financial assets to help prop up the economy. From the middle of November, it will scale this back by US$15bn each month. This is at least an acknowledgement by the Fed that its excessively stimulatory monetary policy must eventually come to an end.

Back in the UK, the Bank of England has accumulated £800bn of government debt as a result of its own QE asset purchases, designed to stimulate demand particularly since the outbreak of Covid. At some stage, the Bank will need to begin offloading this debt.

Its choices of when and how to do this present the Bank with arguably an even bigger dilemma than the bank rate, because unwinding QE will drive up yields on bonds – thus directly raising interest costs for the government and all other long-term borrowers.

In fact, yields have already started rising after many years of decline (see chart above). This is a sign that investors think that monetary policy needs to become tighter to curb inflation (by raising official rates and reversing QE) – which also explains why mortgage rates have already been rising.

This all confirms that the long era of ever-cheaper finance is finally over. The future will be tougher thanks to higher interest rates, or higher inflation, or both.

John Whittaker, senior teaching fellow in economics, Lancaster University.

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

1. The Bank of England’s inflation rate stunt

Matthew Lynn for The Spectator

on fiscal forecasting

“In many ways, the current governor of the Bank of England Andrew Bailey is an upgrade on his high-profile predecessor Mark Carney,” writes Matthew Lynn in The Spectator. “And yet, in the most important respect, he is turning out to be very similar.” Bailey “is constantly threatening to raise interest rates, and then backing off at the last moment”. The Bank’s Monetary Policy Committee has this week voted to hold rates, after multiple hints they would be raised. “What is hard to justify is misleading the market,” he says, and this latest episode was “the same kind of stunt that Mark Carney used to pull on the markets”. With his latest decision, “Bailey is turning into the new Carney – and eventually that will start to damage his credibility”.

Read more

2. Boris Johnson’s next problem is his own furious MPs

James Forsyth for The Times

on a fracturing coalition

“This government has learnt how to U-turn quickly in recent months but what we’ve just seen was spectacular, even by its standards,” writes James Forsyth in The Times. Tory MPs are “furious” because they “compromised themselves” to protect Owen Paterson “only to reverse their position only hours later”. Downing Street has “misread the mood of the parliamentary party”, The Spectator’s political editor says, and angry backbenchers are now Boris Johnson’s next big problem. The prime minister effectively heads a “coalition” government in which “veteran MPs sit for traditional Tory seats, while the newer intakes are more likely to represent constituencies that have been Labour until recently”. It will take “careful party management“ to hold his parliamentary party together, he adds. And that is ”not the forte of the Downing Street operation”.

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3. Young people like me have made history this Cop26 ‘youth day’ – now it’s your turn

Scarlett Westbrook for The Independent

on green kids

“Cop26 has failed to successively implement adequate climate measures, decade after decade,” writes Scarlett Westbrook for The Independent, “instead choosing to pass policies that line the pockets of fossil fuel corporations that are tearing our planet and livelihoods apart”. The climate activist argues that “the real force for change at Cop isn’t in the conference hall, but on the streets of the host city”, where, as “world leaders squabble over semantics”, thousands of young people “have gathered together to unite for climate justice”. Today’s strike for “global climate justice” clarifies “the true catalyst for radical and idiosyncratic change that young people are”, she says. “Another world is possible – and we won’t stop our efforts until we attain it.”

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4. Piers Morgan’s departure left Good Morning Britain with an identity crisis Richard Madeley can’t solve

Kuba Shand-Baptiste for The i news site

on TV tribulations

“When Piers Morgan stormed off the Good Morning Britain set and out of the show for good in March, some of us were ecstatic,” writes Kuba Shand-Baptiste on the i news site. But it created a problem for the producers, namely “who was going to give the British public their daily dose of fiery debate”. She is “struggling to see how ITV will fill his shoes”, adding that Morgan’s “professional trolling” has left behind a “gammon-sized hole” that cannot be filled by the “watered-down” Richard Madeley. “What the show needs to think about is what it actually wants to contribute to public debate,” she adds. “It’s easy to live up to an objective of button-pushing if you have an unscrupulous, yet charismatic troublemaker as the focus of your show“, but ”without him, you need a different USP”.

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5. Prince Charles has finally won

Will Lloyd for Unherd

on a royal success

“Prince Charles has been described as a prat, a terrible prat, a dangerous prat, ill-advised, idiotic, the ‘puppet of sinister gurus’, dismal, a ‘sower of division and contention’, and ‘way too grand’,” writes Will Lloyd for Unherd. And that was just one article in The Spectator. Recalling how “everyone from Diana to The Sun and foreigners” would all mock the heir to the throne, Lloyd says that “finally, Charles is respected, admired, and – most shockingly of all – listened to”. His long-standing concern about climate change meant “the world’s leaders saluted him” during the Cop26 conference. The “dissident Prince” is the toast of the town and “accepted at last”, Lloyd adds, because “scientific expertise” now “agrees with him about hedges and bees”.

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The looming lockdown for England will undo the economic progress made over the summer and push Britain into a double-dip recession, according to revised forecasts from leading economists.

Back in April, the first full month of the first lockdown, the UK economy shrank by a record 20.4%. Now, experts are warning that the tighter restrictions announced by Boris Johnson on Saturday will “obliterate the country’s fragile economic recovery”, The Times reports.

Many are predicting that the final-quarter GDP will shrink by as much as 8%. And Gerard Lyons, an economic adviser to Johnson when he was London mayor, told The Guardian that the contraction could be as high as 10%.

Howard Archer, chief economic adviser at forecasting group EY Item Club, agrees that there is “little doubt” a new national lockdown will “cause the economy to contract in the fourth quarter and very possibly by an appreciable amount”. Paul Dales, economist at Capital Economics, added: “The recovery has been quite good and we were making progress but it will go into complete reverse in a short while.”

Bank of England policymakers are expected to agree to inject up to £100bn into the economy when they meet this week. The nine-strong Monetary Policy Committee (MPC) was already poised to announce “gloomier economic forecasts” even before the prime minister announced the drastic tightening of restrictions to tackle rising Covid-19 infection rates, The Guardian reports.

The MPC is said to favour quantitative easing to stimulate the economy - a process in which the Bank creates a form of electronic money that can be used to purchase UK government bonds.

Government borrowing from April to September was nearly four times the £54.5bn borrowed in the whole of the last full financial year. Meanwhile, debt has already hit £2.06trn, equivalent to 103.5% of GDP and a 60-year high.

After cutting interest rates to the current historic low of 0.1% in March, the Bank of England (BoE) has been dropping hints that rates could be set to go negative.

A negative interest rate gives consumers and businesses an “incentive to spend or invest money rather than leave it in their bank accounts where the value would be eroded by inflation”, explains the International Monetary Fund. And the UK economy needs a cash boost as the coronavirus pandemic continues to take a heavy financial toll.

Intimations from “various members of the central bank’s policy committee suggest that they aren’t desperate to go negative”, however - but “nor are they ruling it out”, says MoneyWeek’s John Stepek.

On 12 October, the BoE’s Prudential Regulation Authority sent a letter to banks and financial firms enquiring about their “operational readiness” for a zero or negative bank rate.

With “more and more people are growing concerned about their savings”, financial expert Martin Lewis told viewers of ITV’s Martin Lewis Money Show last week that while “it’s ‘if’ [rates go negative] - very much if”, that likelihood is “more plausible than it was before”, the Daily Mirror reports.

But exactly what could that mean for your finances?

What are negative rates?

The idea of negative interest rates is to “encourage banks to increase lending because the Bank of England will charge them to hold their cash”, says MoneySavingExpert.

But it may also mean “you, the customer, paying your bank or building society to look after your hard-earned savings”, adds This is Money. By contrast, “borrowers (again, in theory) could be paid for having a loan. In other words: out with prudence and in with financial indulgence.”

‘Outlandish and paradoxical’

For most people, the idea of negative interest rates is like something out of Alice Through The Looking Glass - a world in which everything is weirdly inverted”, writes the Daily Mail’s Dominic Lawson. Among central bankers, however, it has become a “very real proposition”.

MoneyWeek’s Stepek agrees that for the rest of us, the notion is “outlandish and paradoxical and very hard to wrap your head around”. He adds: “When you lend money to someone, you expect to be the one who gets paid interest. You’re the one with the money. They’re the party who needs it. Why would you be the one who pays them?”

But “of course, this is the point,” Stepek continues. “If you get paid to borrow money, and you get charged to save money, then we’ll all want to borrow and we won’t want to save. At least, that’s the theory the central banks are following.”

Not everyone is convinced by the banks’ reasoning. In today’s leading article, The Times says that “the Bank of England hopes that a further rate cut would persuade banks to lend. This would be a mistaken policy, with long-term economic costs.”

Impact on mortgages, savings and loans

It may seem “counterintuitive” to charge a business or consumer for depositing money, but “it then allows a bank to lend at a negative rate, which rewards borrowers”, says The Guardian. “A negative-rate mortgage means the interest bill is credited to the borrower’s account rather than debited, reducing the sum borrowed over time.”

MoneySavingExpert.com founder Lewis cautions that people with mortgages and other debts are unlikely to get paid a negative interest rate, however. The best-case scenario would probably be for people on tracker mortages to drop to 0% rates, “so you wouldn't have any cost for borrowing money on your mortgage”.

The impact on savers, meanwhile could be “far more devastating”, because banks might begin charging them to look after their money.

“This is all a great big hypothetical balloon right now,” Lewis continues. “What everyone with savings should do certainly is make sure you’re maximising your money. And if you’re scared of negative interest rates, go and lock in with a fix, providing you won’t need to withdraw money in that time.”

End of free banking?

Virgin Money chief executive David Duffy has also issued a “stark warning” that banks could start charging for basic services if interest rates turn negative.

He told The Mail on Sunday that “there will be no decisions until everyone sees what happens over the next year with Covid, but certainly you have to think about how you are going to provide the service, the technology, the branches and the card. It can’t all be free.”

The paper says that Duffy’s comments are the “clearest signal yet that ordinary customers could be hit if interest rates go negative”, because “currently, the holders of the vast majority of Britain’s 73 million current accounts pay no fees if they are in credit”.

The Mail’s Lawson concludes: “At this rate, there’ll be nowhere left for our savings except under the mattress.”

At least 10,000 jobs have been slashed in the UK in just 48 hours as companies battle to stay afloat during the coronavirus crisis.

High-street retailers and the aviation sector are “bearing the brunt of the losses” as the economic impact of the pandemic continues to be felt, says The Times.

SSP, the parent company of Upper Crust, announced yesterday that 5,000 employees were being made redundant, while John Lewis, Harrods and Philip Green’s Arcadia, which owns Topshop, confirmed a total of around 1,200 job losses.

Harrods managing director Michael Ward pointed to both social distancing measures and the “devastation in international trade” when explaining the company’s decision to cut around 14% of its 4,800-strong workforce.

The news came less than 24 hours after plane-maker Airbus announced 1,700 staff cuts in the UK, and easyJet shared “plans to pull out of Stansted, Southend and Newcastle Airports, possibly putting more than 700 jobs at risk”, reports ITV News.

Aviation firms are in the midst of “the gravest crisis the industry has ever experienced”, said Airbus chief executive Guillaume Faury.

Meanwhile, menswear company TM Lewin collapsed into administration, costing 600 jobs, with furniture store Harveys also going under, resulting in 240 redundancies.

A further 900 cuts were announced at management consulting firm Accenture, while 300 redundancies are being made across Virgin Money, Clydesdale Bank and Yorkshire Bank, according to the BBC.

And many more job losses are expected as other companies seek to reduce costs ahead of the winding down of the government’s furlough scheme.

The Bank of England has predicted unemployment rates may hit 10% by the end of this year, reports the Financial Times.

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The UK economy is on track for a faster recovery from the coronavirus crisis than previous predictions suggested, the Bank of England’s chief economist has said.

“Issuing an upbeat assessment”, Andy Haldane said there were signs of a V-shaped economic recovery - when “growth rapidly snaps back from a steep downturn in activity”, says The Guardian.

Data on payments, traffic flow, energy use and business surveys suggested that “the recovery has come somewhat sooner, and has been materially faster” than was forecast in May, Haldane said during a Bank webinar on Tuesday.

“Policymakers and economists have grown increasingly gloomy in the past few months”, warning of “a slow U-shaped recovery, a ‘W’ caused by a second rise in cases, or even an ‘L’, where the recession is prolonged”, The Times reports.

But Haldane said that while it was “early days”, his “reading of the evidence is so far, so V”.

“Both the UK and the global economies are already well into the recovery phase,” he continued. “The UK’s recovery is more than two months old.”

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However, the BoE expert “emphasised that the economy was still facing an unprecedented collapse and that a steep rise in unemployment posed a threat to a swift rebound”, says the newspaper.

Either consumer spending would ease unemployment or unemployment would cut household spending, Haldane added.

As the BBC notes, both scenarios “create virtuous or vicious cycles”, but Haldane “said that he could not tell which one would prevail” as yet.

The economy is currently “benefiting from robust strength in consumer spending”, boosted by workers working from home or receiving the government’s furlough payments, the broadcaster adds.

But Haldane said that “as the furlough scheme tapers from August”, there would be “a risk this greater number of furloughed workers are not hired back by employers, adding to the unemployment pool”.

The UK government has broken new economic ground by borrowing £3.8bn for three years at a price that means investors will get back less than they paid out.

Or as The Times puts it, “for the first time in history, investors have lent the UK government money for a lengthy period with the promise that they will not be paid back in full”.

The issuing of government bonds, or gilts, with an effective negative interest rate of minus 0.003% on Wednesday came as Bank of England governor Andrew Bailey told MPs that plans to slash the base rate - currently at 0.1% - into negative territory were “under active review”.

So what does it all mean?

A “negative yield” effectively means that investors “have to pay to lend money to fund the government’s response to the Covid-19 pandemic”, says The Guardian.

Gilts are seen as a “safe haven in times of financial stress”, with expectations that “inflation will be close to zero or could turn negative” currently adding to their appeal.

Investopedia explains that during periods of extremely low interest rates, “large institutional investors” are often “willing to pay a little over face value for high-quality bonds”.

These investors accept “a negative return on their investment for the safety and liquidity that high-quality government and corporate bonds offer”, says the financial information site.

The practice has already been deployed in Japan and Germany, with Britain now joining the “topsy-turvy world of negative rates on new government borrowing”, adds The Times.

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What happens next?

Aaron Rock, investment director at Aberdeen Standard Investments, predicts that regardless of whether the BoE’s Monetary Policy Committee chooses to adopt negative policy rates due to low inflation, “there will be continued demand for gilts at low and negative yields”.

BoE boss Bailey last month ruled out cutting policy rates to below zero. But the ongoing crisis has “persuaded the Bank that it needs to consider all tools available to make credit cheaper for embattled businesses and households”, according to The Guardian.

“The move would be unprecedented in the Bank’s 325-year history and would leave only the US Federal Reserve among major central banks to rule out negative rates,” the newspaper adds.

The UK’s budget deficit is set to increase to a level never before seen in peacetime, as government borrowing to cover the coronavirus cost burden skyrockets.

In a statement to financial markets, the Treasury said it would seek to raise £180bn over the next three months to allow it to meet its spending needs as tax revenues plunge. This is on top of £45bn already planned for April.

The Financial Times reports that “the government is likely to find willing buyers for the avalanche of gilts it will place on the market in coming months because the Bank of England has pledged to snap up £200bn in the secondary market under its latest and largest quantitative easing programme”.

“The government’s gilt sales to City investors and overseas asset managers are typically higher than the budget deficit – the annual shortfall between public spending and income from tax receipts – as it includes raising money to refinance existing government bonds,” says The Guardian. “However, the vast increase in gilt sales suggests that borrowing is expected to balloon, as the state pays workers’ wages and as more people claim unemployment benefits”.

“One reason is the huge cost of programmes such as furloughing, now expected to cost well north of £50bn,” says BBC economics correspondent Andy Verity. “The other reason is that the government's revenues - the tax it collects through income tax, VAT and national insurance - are collapsing. If you shut down much of the economy, you also turn off the tap on much of the government's tax income.”

The Office for Budget Responsibility (OBR) has warned that the budget deficit could surge to £273bn this financial year - 14% of GDP, which “would be the largest single year deficit since the Second World War”, the Daily Express says.

The picture for the full financial year looks even bleaker.

The OBR estimates that the government might need to borrow up to £382bn for the year, about seven times what was expected pre-Covid. “That depends, though, on the shutdown being lifted sooner rather than later,” says Verity.

The Resolution Foundation thinktank, meanwhile, calculates that a six-month lockdown would require the government to raise around £500bn in financing this financial year.

“It signals a massive challenge ahead for the government to claw back cash at a time when it is also, currently, determined to press ahead with its election agenda of ‘levelling up’ UK regions,” says Sky News.

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The chancellor is facing mounting pressure to fully underwrite loans to hundreds of thousands of small businesses ahead of payday this week.

Under the government’s flagship £330bn bailout scheme unveiled last month, the Treasury has promised to cover 80% of wages up to £2,500 a month to businesses who furlough staff rather than making them redundant.

However, one month into the lockdown, and with Friday’s payday looming, “businesses are fast running out of cash” but “money is only trickling out of [Chancellor Rishi] Sunak’s £330bn bailout fund”, says The Times.

As of the middle of last week, only £1.1 billion had been lent to about 6,000 of Britain’s 5.8 million small companies. Yet today up to 2.3 million businesses are eligible to apply for government furlough cash to pay wages, “potentially flooding HMRC’s new website when it opens”, says The Times.

Comments by Bank of England Governor Andrew Bailey that an extension of government guarantees to lenders from 80% to 100% could speed up the delivery of financial assistance to cash-strapped firms and make the process less complicated has “heaped additional pressure on the Chancellor to follow the example of other countries” says the BBC.

Once again Germany has been held up as the example to follow. Fully backed by the state, its scheme has already lent out €7bn compared with just £1.1bn in the UK.

US lenders have approved more than 300 times as much lending as in the UK while even Swiss banks have approved 98,000 loans, compared to just over 6,000 in the UK.

Arguing “numerous restrictions to both lenders and borrowers show the state-backed loan scheme is not currently fit for purpose”, The Telegraph says “banks still feel the need to put a big effort into the so-called ‘forward-looking viability assessment’, which is supposed to work out the chance of a company actually having a business on the other side of the crisis”.

“Many have said they are worried the British Business Bank, the administrator of the loans, will use inadequate assessments as an excuse to walk away from the 80% of the loan that the government is guaranteeing,” the paper says.

The BBC reports that “currently banks do not feel they can dispense with normal credit checks just because they may ‘only’ lose 20% of the sum advanced”.

Shadow business secretary Ed Miliband is one of a growing number arguing that the state should fully underwrite the loans rather than just 80% of the value as it currently does.

“On the other side of the crisis, you will not wish you had done less but that you had done more,” he said.

However, the BBC adds that “expanding the guarantee to 100% would mean the taxpayer would be taking all the risk that the loans were not repaid”, an outcome Miliband has admitted creates a “moral hazard”.

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The Bank of England has cut interest rates, warning the coronavirus pandemic will result in a “sharp and large” shock.

In a bid to support the UK economy in the face of the outbreak, the Bank made its second interest rates cut in a little over a week, bringing them down to 0.1% from 0.25%.

The coronavirus pandemic has “truly moved UK economic policy into uncharted territory with that emergency rate cut,” The Guardian reports.

Meanwhile, Faisal Islam, economics editor of the BBC, says monetary policy “remains a blunt tool to deal with a pandemic and its economic fallout”, but adds that the move creates “some space” for “much more action on tax and spend... to deal with the enormous economic hit from the virus”.

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The Bank said the measures announced earlier this week by Chancellor Rishi Sunak were not going to be enough to protect the economy, adding that “a further package of measures was warranted”.

Jeremy Thomson-Cook, chief economist at payments company Equals Group, says that with the interest rate cut, the Bank of England is effectively saying “your move” to the Treasury.

“The base rate is now at the lowest level we think the Bank of England is prepared to go to and with that will come a not so unsubtle hand-off of the stimulus baton to the Treasury,” he says.

Unless money is “forced into the hands of small businesses soon then it will be for nothing; they are the ones laying off staff due to a liquidity shock,” Thomson-Cook adds.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Britain is now a whisker away from the negative interest rate club.”

The emergency cut is bad news for savers, as High Street banks use the Bank of England base rate as a reference point for savings accounts. The rate cut could, however, benefit homeowners, although it will not affect fixed-rate mortgages that account for roughly half of home borrowing in the UK.

Martin Lewis of MoneySavingExpert.com said after last week’s cuts that it is a good time to remortgage.

He told This Morning: “If you're looking to remortgage, I would say right now this is a very good time. I'd wait a week or two, because those mortgage rates are going to come down.”

The Bank also unveiled another £200bn in bond buying under the quantitative easing programme, as well as extending the term funding scheme. The latter is hoped to encourage lenders to pass on the benefits of interest rate cuts to companies and households.

Andrew Bailey, the new governer of the Bank of England, took over from his predecessor Mark Carney on Monday.

Interest rates have been cut by the Bank of England in a bid to counter the effects of the global coronavirus outbreak on the UK economy.

The Bank of England’s Monetary Policy Committee has agreed to reduce the main bank rate from 0.75% to 0.25%, “leaving almost no room to cut rates further”, says the Financial Times.

The decision was announced as Chancellor Rishi Sunak prepared to announce the 2020 Budget, with constraints on government spending and borrowing expected to be lifted.

So who will benefit - and who will lose out - from the interest rate cut?

Savers

The cut is bad news for savers, because High Street banks use the Bank of England base rate as a reference point for savings accounts.

That said, savers have “had to endure years of low returns anyway”, notes the BBC, which adds: “They may take heart from the fact this is a temporary measure from the Bank.”

According to Martin Lewis of MoneySavingExpert.com, the average UK saver currently earns just 0.4%, while the best easy-access accounts pay 1.3%.

“All these rates will likely drop. Yet at the very least make sure your money is in the top payer, not the poorest,” he says.

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Homeowners

The rate cut may benefit homeowners, although it will not affect fixed-rate mortgages, which account for roughly half of home borrowing in the UK.

But people with variable or tracker-rate mortgages, or those about to take out a new mortgage or remortgage, are likely to be better off as a result of the decision.

Meanwhile, some banks are offering breaks from mortgage repayments for customers affected by the coronavirus outbreak.

Credit card and personal loan borrowers

MoneySavingExpert.com expert Lewis says that “most loans, credit cards and other debts will likely be unaffected or only minimally affected, because the Bank’s interest rate only plays a small part in their rates”.

Again, some banks are offering temporary credit limit increases, repayment breaks or waived fees for missed payments for people affected by the epidemic.

Business owners

The Bank of England’s “emergency action is clearly designed to help protect businesses, particularly small and medium-sized ones, and in turn the employment of millions of people”, says the BBC.

The broadcaster’s economics editor Faisal Islam says the key goal is to protect the cash flow of these companies, which may face “slumping demand, trade difficulties and staff absence” as the virus spreads across the UK.

Although the outbreak is “unique and highly unpredictable”, the Bank of England measures “should provide the firepower for banks to boost lending well above current lending levels”, Islam adds.

The Bank of England is facing questions over its plans to soften the blow of coronavirus in the UK as concerns over its economic impact grows.

The coronavirus continues spreading with alarming speed throughout the world, and central banks and monetary policy organisations are beginning to mobilise.

On Wednesday, the International Monetary Fund downgraded its growth forecasts, warning the global economy will struggle to match the 2.9% expansion achieved in 2019 and promising $50bn in emergency funding for low income and emerging market countries. A day earlier, the US Federal Reserve announced its first emergency rate cut since the 2008 financial crisis.

The question now is whether and how the BoE will follow suit.

Incoming BoE chief Andrew Bailey warned MPs on Wednesday that, while the coronavirus was “the first most pressing issue that we face”, Threadneedle Street has limited room for a similar move - its key interest rate is already at 0.75%, one of the lowest levels in the bank’s 325-year history.

There was some space to drop rates to 0.1%, said Bailey, but the Bank is not yet close to taking this step. “What we need is more evidence than we have at the moment on exactly how this is feeding through,” he said.

As a result, added Bailey, the central bank and the government would have to move quickly to coordinate “the right mix of policy”, including measures to ensure small and medium-sized businesses can secure emergency loans to cope with potential supply-chain disruption.

“I think it is quite reasonable to expect that we are collectively going to have to provide some form of supply-chain finance,” said Bailey, who is due to take over from Mark Carney as Bank governor on 16 March.

The Financial Times says Bailey believes “that the BoE can still deliver stimulus equivalent to an interest-rate cut of 2.5 percentage points, through a combination of conventional policy, quantitative easing, concessionary funding for commercial banks and guidance to markets on future interest rates”.

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The incoming governor faced harsh questioning during his time in front of the Treasury Committee yesterday as MPs scrutinised his suitability for the role, focusing on what The Guardian calls a “series of scandals on his watch” during his time as head of the Financial Conduct Authority.

Speaking in front of the same committee the day before, outgoing governor Carney echoed these claims, saying the BoE’s role was “to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary”.

“We don’t want viable businesses to go out of business because of the very necessary steps that need to be taken to protect and serve the British public,” he said.

In Brussels, concerns are also high, with Bloomberg reporting that European ministers have been warned that “the coronavirus outbreak threatens to plunge both France and Italy into recession, and the ripples from a prolonged outbreak could incite a ‘vicious’ spiral of declining markets”

The Bank of England carried out due diligence three times on a tech firm that was later revealed to have passed paying clients early access to market-sensitive information.

The technology supplier Encoded Media was probed three times between 2008 and 2019, yet its status as a supplier to the BoE was only revoked following media inquiries in December.

The revelation has struck a fresh blow to the BoE’s credibility in securing crucial national infrastructure.

The BoE disabled the company’s access to a backup audio feed after The Times revealed the breach and said the company would have no part in future press conferences, calling the sale of access “wholly unacceptable” and saying the feed was “misused”.

Although non-public information was not revealed, the audio feed potentially allowed unidentified paying customers to hear the governor Mark Carney’s highly influential words at press conferences as much as eight seconds ahead of rivals listening via other means – giving a potentially lucrative advantage.

“Eight seconds may not sound like a long time. But in the modern financial world, it’s a valuable head start that can give traders a crucial edge,” explained The Guardian last year.

Mel Stride, the chair-elect of parliament’s Treasury select committee, said he expected the MPs to ask “searching questions” of the outgoing governor, Carney, and his replacement, Andrew Bailey, at hearings this week.

Encoded Media director Wand insisted Encoded did not hijack audio feeds, adding that previous reports had “already caused economic loss to Encoded Media and Statisma, as well as considerable distress to its directors who run an entirely reputable small technology business with limited resources”.

The BoE has previously stated that its restructuring was carried out to strengthen its information security and that it is confident in its ability to protect against security threats.

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Speculation about a cut in interest rates has intensified after the UK’s inflation rate sank to its lowest level for more than three years.

Commentators said the chances of a rates cut at the end of January are higher after the rate of inflation dropped to 1.3% last month, down from 1.5% in November. The fall was met with surprise by City economists, who had expected the figure to remain steady.

The Guardian says the drop was “fuelled by struggling retailers offering a wider range of discounts in December”.

It comes hot on the heels of GDP data that had already sparked speculation of a cut in rates.

Melissa Davies, from the stock broker Redburn, said that “very soft UK inflation data for December leaves the door wide open for a Bank of England rate cut on 30 January”, when the Bank of England Monetary Policy Committee (MPC) is next due to meet.

Andy Verity, the BBC’s economics correspondent, said “city traders who spend their working lives trying to anticipate moves in interest rates are convinced” the Bank will cut the official interest rate.

Michael Sanders, an MPC member who has voted for a rate cut at the last two meetings, said yesterday: “Risk-management considerations favour a relatively prompt and aggressive response to downside risks at present.”

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However, Ruth Gregory, the senior UK economist at Capital Economics, was more cautious. She said the figures “might be enough to tip the balance on the MPC towards an imminent rate cut”, but added that “everything now depends on the economic news over the coming weeks”.

Matthew Ryan, a strategy analyst at Ebury, has also encouraged the public to not get too carried away. “While we acknowledge that the chances of a cut later this month have undoubtedly increased in the past few days, we think that the market has slightly overreacted,” he said.

“It is worth stressing that the three BoE members... all noted that additional data would be required before they decide on whether to vote for lower rates.”

The UK economy shrank more than expected in November as consumer spending and manufacturing declined in the run-up to the December election, newly released figures show.

The disappointing result followed the third Brexit deadline delay, after Parliament voted in October to extend the UK’s membership of the EU by a further three months.

What has happened?

Gross domestic product (GDP) fell by 0.3% in November from the previous month, according the the Office of National Statistics (ONS).

The UK’s manufacturing sector’s output was 1.7% lower in November, while the service industry - which accounts for 80% of the UK economy - was down by 0.3%, reports the Financial Times.

Rob Kent-Smith, head of national accounts at the ONS, said: “The economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012.”

However, Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, insists there are some positives to be drawn from the November figures.

Upward revisions for the previous two months suggest “the latest gross domestic product data are nowhere near as horrendous as they appear initially”, he says, adding that the weakness “should prove to be temporary”.

Why was the November result unexpected?

The performance was worse than the 0% growth that economics had forecast for the month.

That prediction came after the UK economy shrunk in the second quarter of 2019 for the first time in almost seven years, a decline blamed on Brexit uncertainty.

But modest growth in September and October, at 0.1%, led economists to expect a slightly better November than proved to be the case.

Britain’s oldest economics think-tank, the National Institute of Economic and Social Research (NIESR), estimates that figures due to be released next month will show that the UK economy stagnated in the fourth quarter, with growth for 2019 as a whole at 1.4%, reports Bloomberg.

Garry Young, the think-tank’s director of forecasting, said: “While there is some evidence of an improvement in business optimism following the general election, it is doubtful that this will do much to change the short-term economic outlook of further lacklustre growth.”

Why did it shrink?

November marked a bad month in a bad year for the UK economy, which grew by just 0.9% up to that date - the weakest annual growth for eight years, reports The Times.

The lack of growth, particularly in November, was probably down to political uncertainty hanging over families and businesses ahead of the 12 December election, says The Guardian.

The newly released figures will increase pressure on the Bank of England’s Monetary Policy Committee (MPC) to cut interest rates, says economist Andrew Wishart of Capital Economics.

“In normal times, the MPC would already have cut rates but it held off to see if the general election produced a revival in sentiment,” he explains. “What really matters is what happens in the data for January. At the moment, we think the MPC may hold off from cutting rates but it will be a close call.”

The committee will have plenty of data to examine before making a decision, due to be announced on 30 January. New figures for inflation, retail sales and unemployment levels are due to be released over the next few weeks, along with the Purchasing Managers Index for January, which will give an indication of how the economy has fared so far this year.

Lee Hardman, a currency analyst at Japanese bank MUFG, told the Financial Times: “The UK rate market has been underpricing the risk of a BoE rate cut and will need to continue to adjust to price in a higher risk as soon as at the end of this month.”

Meanwhile, Frances O’Grady, general secretary of the Trade Union Congress (TUC), is calling on the Government to respond to the downturn with plans to boost growth and living standards.

“These figures are bleak news for the economy and working people, with vital industries like manufacturing in the doldrums,” she said.

The Bank of England's next governor Andrew Bailey is facing a grilling by the Treasury Select Committee over his impending ascension to the role later this month.

The meeting comes after lawyer Gina Miller called on Chancellor Rishi Sunak to launch an independent review into Bailey’s tenure as CEO of the Financial Conduct Authority (FCA) ahead of his appointment to the BoE.

Miller alleges that his time at the FCA was characterised by a “toxic cocktail of negligence, incompetence and indifference” that allowed a string of financial scandals to go unchecked, wiping out the savings of small investors, The Guardian reports.

The FCA has said it “utterly” rejects the claims, which it says contains “numerous inaccuracies and are made with little understanding of the role of the FCA”.

He will replace Mark Carney on 16 March.

Who is Andrew Bailey?

Bailey spent the vast majority of his career at the Bank of England, which he joined in 1985, but is currently the chief executive of the Financial Conduct Authority (FCA), the City watchdog.

He was chief cashier at the Bank of England during the financial crisis when, he told the Financial Times: “The [RBS] treasurer, John Cummins, came in and I thought he was going to have a heart attack... and he looked at me and said: ‘I need £25bn today, can you do it?’ I said: ‘Yes, I can do that.’”

Bailey has also been deputy governor and was head of the Bank’s prudential regulation division, before leaving to join the FCA as its chief executive in 2016.

He is highly thought of by colleagues and civil servants, says the BBC’s business editor Simon Jack, and will be paid £495,000 a year in the role.

Announcing the appointment, then-chancellor Sajid Javid said Bailey was “the stand-out candidate in a competitive field”.

“He is the right person to lead the Bank as we forge a new future outside the EU and level-up opportunity across the country,” he added.

But the FCA has been criticised in recent months over its regulatory scrutiny of the fund managed by the disgraced Neil Woodford, says the BBC. The fund was suspended in June and eventually closed, meaning investors are likely to lose considerable sums of money.

And an FCA report into the Royal Bank of Scotland’s treatment of small businesses was called a “whitewash” by MPs after it recommended taking no further action against the bank, despite RBS allegedly engineering defaults on loans so that it could acquire business’s property, says The Independent.

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What challenges will he face as governor?

According to City A.M., Bailey will face a number of issues as he takes the role. First off, he is likely to be pressured to “maintain Threadneedle Street’s concern with climate change” after more than 101 economists, scientists and industry leaders penned a letter to him.

The paper adds that the BoE has “earned international plaudits for its approach to climate change under current governor Mark Carney, who has warned that the financial sector’s investments are currently not consistent with stopping global temperatures rising 2C” - a path Bailey will have to follow Carney down.

And he will have to deal with calls for a regulatory shake-up aimed at stopping investors withdrawing their money from funds instantly, after high-profile funds got into trouble last year because of high demand for withdrawal.

The new governor will also need to address criticism of a lack of diversity at the Bank. Only one of its nine-member rate-setting committee is a woman – Silvana Tenreyro – and Carney’s four deputy governors are all white, middle-aged men. There has never been a female governor of the Bank of England in its 325-year history.

On top of this, Bailey will need to take steps to handle the continued reliance on the London Interbank Offered Rate (Libor), the interest rate used between banks and the benchmark for lending rates on financial contracts, that is being phased out by the end of 2021.

Hedge funds have been snooping on the Bank of England’s press conferences before they are officially broadcast, in an “embarrassing” development for the central bank.

The BoE has discovered that one of its suppliers has been leaking an audio feed of its press conferences to high-speed traders who hope to profit by responding to the governor’s comments before their rivals.

The Times says that hearing what senior officials, including Governor Mark Carney, say before others can be “highly lucrative” for speed traders, who can “make fortunes from early access to information”.

“The revelation that the Bank of England’s systems have been abused to give one set of traders an advantage over another will be an embarrassment because one of its roles is to support fair and efficient markets,” says the newspaper.

The Daily Mail adds that the comments of Carney and co “have the power to shift the value of sterling and other financial markets”.

The Bank has said it “operates the highest standards of information security around the release of the market-sensitive decisions of its policy committees” and the issue identified “related only to the broadcast of press conferences that follow such statements”.

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The third-party supplier is believed to be linked to a market news service that promises clients will gain an edge over rival traders in a field where getting information even microseconds before others can massively inflate profits.

Trading that takes advantage of early access to information is known as high-frequency trading. Though not technically illegal, it is controversial and has been compared to insider dealing because it is a way of trading on information that others do not have.

Although the BoE’s official video feed of press conferences is managed by Bloomberg, the Bank employed contractors to install a separate back-up audio feed several years ago in case the video feed went down.

This back-up feed was never intended to be used by an outsider unless the video failed, but a supplier has allegedly hacked into the audio feed since at least January to provide the service to one of its other companies.

The Bank said: “This wholly unacceptable use of the audio feed was without the Bank’s knowledge or consent, and is being investigated further”. It said that it had “disabled the third-party supplier’s access”.

The Governor of the Bank of England, Mark Carney, has been appointed United Nations Special Envoy for Climate Action and Finance.

The BBC says the special envoy post “is a pro bono position that is undertaken essentially for free” and that the UN will pay Carney just $1 a year for the work when he steps down as governor of the Bank of England at the end of January.

Carney will be tasked with mobilising private finance to take climate action and help transition to a net-zero carbon economy for the 26th Conference of the Parties (COP) meeting in Glasgow in November 2020.

This will include building new frameworks for financial reporting and risk management, as well as making climate change a key priority in private sector financial decision making.

Billionaire former New York Mayor Michael Bloomberg, who recently entered the race to become the Democratic US presidential candidate, was the last person to hold the post. Bloomberg worked with the UN on climate change-related issues from 2014 to 2019.

Speaking at a news conference ahead of a climate summit in Madrid this week, UN Secretary General Antonio Guterress described Carney as “a remarkable pioneer in pushing the financial sector to work on climate”.

Reuters reports that Carney “has urged the financial sector to transform its management of climate risk, and led various international initiatives to improve supervision and disclosure”. In October, he told The Guardian that companies and industries that are not moving toward zero-carbon emissions will be punished by investors and face bankruptcy.

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His successor at the Bank of England has not yet been named after the selection process was disrupted by Brexit and the upcoming general election.

Bloomberg says that there is “boosted speculation [Carney] may be asked to extend his term at the Bank of England for a third time”, although Chancellor Sajid Javid said last month that his party would appoint a new chief “very, very, quickly” if it wins the election.

“The Canadian has given little indication of what he wants to do after leaving Threadneedle Street” says City A.M., adding that “the UN climate job suggests he will seek an active role in global affairs”.

An investigation into the rigging of Libor has been unexpectedly shut down despite evidence that implicates the Bank of England.

The Serious Fraud Office (SFO) began investigating the Libor scandal in 2012, when the then-chancellor George Osborne described it as a “shocking indictment of the culture at banks”. The SFO looked into the manipulation of the Libor benchmark rate, a “key interbank borrowing rate that underpins hundreds of trillions of debt worldwide”, explains the Financial Times.

Thirteen traders and money brokers were prosecuted by the SFO over the past four years for conspiracy to defraud, resulting in four convictions, while banks and regulators around the world have faced fines running to billions of pounds.

The BBC reports that a secret audio recording from 2008 implicates the Bank of England, which “intervened in the Libor setting process” as it was concerned about financial stability.

But when the audio was broadcast in April 2017, the Bank of England said Libor was unregulated at the time.

The SFO has now said in a statement: “Following a thorough investigation and a detailed review of the available evidence, there will be no further charges brought in this case. This decision was taken in line with the test in the Code for Crown Prosecutors.”

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The Times says the SFO’s decision “means that no one will be prosecuted in the UK for ‘low-balling’, which involved institutions understating the interest rates they paid to borrow money”.

John Mann, who served on the Treasury select committee from 2009 to 2015, said there was now a danger that lessons would not be learned from one of the darkest episodes in the City’s past.

“The Libor scandal is being allowed to quietly slip into history, increasing dangers that lessons will not be learnt and leaving those culpable not being held to account,” he said.

However, the Financial Times says the SFO’s seven-year investigation has received “criticism from lawyers who said the agency should have abandoned it sooner”.

Neil O’May, partner at Norton Rose Fulbright representing Barclays ex-group treasurer Jon Stone, said: “Questions must be asked about the effect of such a protracted investigation on those under suspicion and whether justice is indeed served.”

Celebrated Second World War codebreaker Alan Turing will be commemorated on the new £50 note after being chosen from more than 1,000 contenders for the honour.

Announcing the decision during a speech at the Science and Industry Museum in Manchester, Bank of England governor Mark Carney said that the so-called father of computing will appear on the new polymer note by the end of 2021.

Carney also revealed imagery depicting Turing and his work that will be used for the reverse of the note, Sky News says.

“Alan Turing was an outstanding mathematician whose work has had an enormous impact on how we live today,” Carney said.

“As the father of computer science and artificial intelligence, as well as [a] war hero, Alan Turing’s contributions were far-ranging and path-breaking. Turing is a giant on whose shoulders so many now stand.”

Turing’s pivotal role in helping the Allied forces defeat Nazi Germany during WWII has seen him venerated by the British public, with the scientist named the greatest person of the 20th century in a BBC poll earlier this year.

But Turing’s achievements were acknowledged with rather less fanfare during his life. In the 1950s, he was prosecuted and convicted on charges of homosexuality, which at the time was a criminal offence in the UK. Just two years after his arrest, he committed suicide at the age of 41.

Posthumously, Turing has been the recipient of numerous awards and honours, and even received an official apology from the UK Government in 2009. Here’s a look at the life of the genius set to be honoured on the £50 note.

WWII hero

Turing was born in London in 1912 and was an excellent student at school before attending King’s College, Cambridge in 1931, where he received a first in mathematics.

The Guardian reports that during his masters degree at the university, Turing came up with “a number of seminal ideas” including “his vision of a universal computing machine, which can be fed an algorithm for a particular computation and then apply it”. Turing’s later revisions of this idea are described by the Imperial War Museum as “arguably the forerunner to the modern computer”.

After a period working in codebreaking and studying for a PhD at Princeton University in the US he joined Bletchley Park, the Buckinghamshire codebreaking station, at the outbreak of the Second World War.

His initial goal was to break Enigma codes used by the Axis powers in order to distrupt Germany’s extraordinary naval prowess in the early years of the war. Forbes reports that during the first three months of 1942, German U-boats “sank more than 100 ships off the east coast of North America, in the Gulf of Mexico and in the Caribbean Sea”.

Turing was put in charge of Hut 8 at Bletchley Park and, working with Joan Clarke and Polish counterparts, he designed the Bombe: a “purpose built British cryptanalytic machine that helped to break the Enigma used by the Axis”, Gloucestershire Live says.

Turing and his team decoded naval and U-boat messages that had previously been regarded as unbreakable, revealing information about German positions that “helped to shift advantage to the allies during the battle for the Atlantic”, according to The Independent.

The BBC suggests that at a conservative estimate, “each year of the fighting in Europe brought on average about seven million deaths”, and that, had Enigma not been broken, the war might have “continued for another two to three years”.

As such, the broadcaster estimates that between 14 million and 21 million more people might have been killed had Turing not cracked the codes.

Postwar and arrest

For his role in deciphering German intelligence, Turing was awarded an OBE in 1946, but much of his work went unrecognised by the public because of government secrecy laws.

He went on to work at Victoria University in Manchester, where he helped create an innovative series of stored-program electronic devices now dubbed the “Manchester computers”.

His groundbreaking 1950 paper Computing Machinery and Intelligence is considered the “first cogent attempt at describing in detail how computers could one day ‘think’”, Forbes says.

But Turing’s life took an ultimately tragic turn. In January 1952, while having a homosexual relationship with a 19-year-old man called Arnold Murray, Turing’s house was robbed while he was meeting Murray in central Manchester. Murray revealed that he had connections to the burglar, prompting Turing to go to the police.

He was forced to disclose his relationship with Murray to the police at a time when homosexual acts were illegal. Gloucestershire Live adds that, despite the head of cryptanalysis at GCHQ, Hugh Alexander, speaking as a character witness on Turing's behalf and describing him as a “national asset” during the trial, Turing was found guilty of gross indecency and “had to decide between going to prison or undergoing chemical castration”.

He chose the latter, with the subsequent hormone treatment leaving him impotent. He was also barred from accessing or working with GCHQ and was denied entry into the US.

Death

Two years after choosing castration Turing took his own life at the age of 41 by eating an apple laced with cyanide.

CNN reports that sex between men over the age of 21 was decriminalised in England and Wales in 1967.

After thousands of people signed a petition in the late 2000s, the then prime minister Gordon Brown issued an official apology in 2009 for Turing's treatment by the justice system in the 1950s, and he received a royal pardon from the Queen in 2013.

On announcing the decision to put him on the £50 note, the Bank of England said of Turing: “He set the foundations for work on artificial intelligence by considering the question of whether machines could think.

“Turing was homosexual and was posthumously pardoned by the Queen, having been convicted of gross indecency for his relationship with a man. His legacy continues to have an impact on both science and society today.”

John Leech, the former Lib Dem MP for Manchester Withington who campaigned for Turing to be pardoned, described the move as a “rightfully painful reminder of what we lost”, but added that he was “absolutely delighted” that Turing will be the face of the new £50 note.

“It is almost impossible to put into words the difference that Alan Turing made to society, but perhaps the most poignant example is that his work is estimated to have shortened the war by four years and saved up to 21 million lives,” the former MP said. “And yet the way he was treated afterwards remains a national embarrassment and an example of society at its absolute worst.”

The Governor of the Bank of England, Mark Carney, has warned that investors are underestimating the amount of interest rate rises that will be needed if the UK economy continues to grow as predicted.

In its Quarterly Inflation Report, the Bank upgraded its forecasts for the year, predicting growth will edge higher to 1.5% in 2019, up from 1.4% last year and February's forecast of 1.2%, as the world economy stabilises and Brexit worries fade.

The report said growth is being driven by strength in the manufacturing sector. However, it also found that many companies said growth had stalled at the start of the year, “raising the question as to where the growth would be coming from”, says Sky News.

Inflation is also expected to rise slightly faster than previously predicted, reaching 2.1% in the coming months, before falling back to 1.7% in the middle of next year.

With the direction of Brexit still uncertain, the all-powerful rate-setting Monetary Policy Committee (MPC) unanimously agreed to hold interest rates at 0.75%.

“Markets are forecasting just one interest rate increase by 2021,” says the BBC, but if there is a resolution to the Brexit impasse, and inflation and growth continue to pick-up, then more increases are likely, Carney said.

“On past form,” writes The Guardian’s economics editor Larry Elliott, “the Bank’s nine-strong MPC would be highly unlikely to tolerate excess demand running at 1% of gross domestic product (GDP) and inflation of 2.2% (and rising) without responding more firmly. Were it not for Brexit, official borrowing costs would probably already be going up.”

Even so, says the Financial Times, the committee “was still in wait-and-see mode”.

Some analysts have said that the bank should have raised rates sooner. “The key message is once again that the markets are too sanguine about the outlook for interest rates,” Ruth Gregory at Capital Economics told The Daily Telegraph.

“The hawkish tone of the Inflation Report supports our view that interest rates will eventually rise more quickly and to a greater extent than markets currently anticipate.”

It’s a risky balancing act, says BBC economics correspondent Dhardhini David: “At the moment, the MPC reckons ‘the cost of waiting for further information is relatively low’, but that, given the degree of inflationary pressure it's forecasting, is quite a gamble”.

“If the Bank has missed the boat, then rates might have to ultimately rise faster and by more than originally envisaged to curb inflation. That would be an unenviable parting gift from Carney to his successor.”

Chancellor Philip Hammond has fired the starting pistol in the race to become the next governor of the Bank of England.

Hammond had twice persuaded Mark Carney to “stay on at Threadneedle Street from his original summer 2018 scheduled departure date, but knows that there will be no further extension”, says The Guardian’s Larry Elliott. And with Canadian-born Carney set to quit the role next January, the clock is ticking down to find a suitable replacement.

“We are looking, obviously, for a candidate of the highest calibre. As we leave the European Union it’s very important that the UK continues to play an important role in global fora,” Hammond told a parliamentary committee.

The chancellor said that he hoped to make an appointment in October and that his preference was to hire someone for an eight-year term.

The Treasury has appointed a recruitment firm, Sapphire Partners, to help in the search - “the first time it has sought external help to find a BoE governor”, reports Reuters.

Here are some of the top names believed to be in the running:

Andrew Bailey

Seen “as a safe pair of hands”, Bailey is a banking veteran and current head of the Financial Conduct Authority, says ITV News. He previously served as deputy governor at Prudential Regulation and chief executive at the Prudential Regulation Authority.

Berenberg’s chief UK economist Kallum Pickering has described Bailey as “impressive” and highlighted the significance of Brexit in the appointment. “Politically, it would be a good choice to get a Brit in there... The party of Brexit bringing another foreigner in - it would be very surprising,” Pickering told the London Evening Standard.

Andy Haldane

The Bank’s chief economist, Haldane “may be seen as a bit of a maverick but could stand an outside chance to replace Carney”, City A.M. says. Haldane has courted controversy in the past by criticising economic forecasters. He also said the Occupy movement protesters were right to criticise the global financial system and called on politicians and bankers to “behave in a more moral way”.

Ben Broadbent

Carney’s deputy is thought to be interested in the top job. For a decade prior to his appointment to the Monetary Policy Committee, Broadbent was senior European economist at Goldman Sachs, during which time he researched and wrote widely on the UK economy and monetary policy.

Jon Cunliffe

Another of Carney’s deputies, Cunliffe has an impressive-looking CV, having worked at the Treasury and as the UK permanent representative in Brussels. He “knows how EU works, which could prove useful whichever way the Brexit process pans out”, says The Guardian’s Elliott.

Shriti Vadera

The first and so-far only female chair of a British bank arrived in Britain as a child, after fleeing Uganda during the reign of Idi Amin. She read politics, philosophy and economics at Oxford, and had a stint at UBS Warburg, before becoming head of Santander UK. “The Bank needs more senior women in all of its areas, it’s not just a question of the governor. It is a very uncertain time at the moment, not least in monetary policy so it is more important to find the best person for the job,” Vadera told The Mail on Sunday last year.

Raghuram Rajan

A former governor of the Reserve Bank of India (RBI), Rajan predicted the financial crisis back in 2005 and “has a formidable reputation”, City A.M. reports. He is a “distinguished economist” and “knows a think or two about how to handle political pressure”, says The Guardian’s Elliott, who adds that Rajan’s “appointment would suggest that Global Britain might be more than a slogan”.

The Bank of England has voted not to raise interest rates, just hours after the US Federal Reserve’s controversial decision sparked a global market sell-off.

Against a backdrop of weaker global growth, the Bank of England’s powerful nine-member Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.75%.

“In the latest from the Bank of England's interest rate setters, it's not what they did that's eye-catching” says BBC economics correspondent Andy Verity, “it's what they said”.

Cutting its growth forecast to 0.2% in the final quarter of 2019, the Bank warned a lack of clarity around Brexit, combined with a slowing global economy and weaker outlook for the eurozone is harming the UK economy.

“Further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth. Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term. The housing market has remained subdued” the MPC said.

“The result is that all businesses currently have to pay more to borrow on international markets, but British companies have seen the biggest rise in costs” says the Daily Telegraph.

This means businesses are investing less, and will continue to do so for months.

Falling oil prices should ease pressures on the cost of living, bringing inflation down below the Bank’s 2% target in January.

“This also removes pressure to raise interest rates” says the Telegraph, though the MPC said more increases were likely over the coming years because low unemployment and rising wages are expected to push prices upwards.

Business Insider says “the timing of any rate hikes remains unclear particularly with the looming spectre of a possible no deal Brexit hanging over the UK”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he expects the MPC to raise rates by a quarter of a percentage point in May, after the UK formally leaves the EU.

“On balance, we continue to think that the MPC won’t wait for signs of a recovery to emerge in the data and will raise Bank Rate to 1.0% in May, once MPs have signed off a Brexit deal late in [the first quarter of 2019]” he said.

“But a longer delay certainly is possible, given the risk that the article 50 negotiating period might be extended, potentially keeping growth below-trend for longer, and the tail risk of a no-deal Brexit.”

The BoE decision came less than 24 hours after the US Federal Reserve announced it was pressing ahead with its own rate rise, despite pressure from Donald Trump and concerns over the US economy overheating.

That decision, and the Fed’s prediction of two more hikes in 2019, “sparked a wave of selling in the markets”, reports The Guardian.

Japan slumped into bear market territory, as shares dropped across Asia, while in Europe, the FTSE 100 crashed to a 27-month low at the open, with European stocks also hitting their lowest points since late 2016.

Most worryingly, Wall Street is on course for its worst December since the Great Depression after a fourth interest rate rise of 2018 at the US central bank stoked fears that its policymakers are pushing markets to breaking point.

Former prime minister Margaret Thatcher is in the running to be the next face of the new £50 note, after making in onto the Bank of England’s newly published list of possible candidates.

The Iron Lady was not expected to considered for the honour, which has been limited to people who have contributed to the field of science.

However, a Bank spokesperson explained: “Margaret Thatcher is eligible to be on the note because she was a scientist - she was a chemist before she became prime minister, and she actually helped invent the soft-scoop ice cream.”

Thatcher studied chemistry at Oxford University and worked as a food research chemist for London-based food manufacturer J. Lyons & Co before entering the world of politics, adds The Daily Telegraph .

Other scientists who made the 800-strong list include astrophysicist Stephen Hawking, medic-turned-runner Roger Bannister, penicillin pioneer Alexander Fleming and telephone inventor Alexander Graham Bell.

The Bank received a total of 174,112 nominations from the public, 114,000 of which met the criteria.

Hawking is the bookies’ favourite to claim the ultimate honour, with odds of 7/4, followed by chemist Dorothy Hodgkin, at 4/1, says the BBC.

Hodgkin was awarded a Nobel Prize in 1964 for her work in chemistry, using crystallography to find out the three-dimensional shapes of penicillin and vitamin B12.

Her work with penicillin is still important for the development of antibiotics today, and her 1969 discovery of the shape of the insulin molecule impacted the treatment of diabetes.

“Her life was a shining example to so many, so it would be entirely appropriate for us to honour her great scientific achievements... by putting her image on our new £50 notes,” writes Elspeth Garman, a professor of molecular biophysics at the University of Oxford, in an article on The Conversation.

The winner will be announced next summer, although the new polymer note will not go into circulation until 2020 at the earliest.

Since the Queen is the only living person who can be featured on a Bank of England note, the scientist must be deceased.

The Bank's governor, Mark Carney, will have the final say on who is selected, eliminating the risk of embarrassments like the “Boaty McBoatface” debacle of 2016, when the National Environment Research Council came to regret asking the public to name its £200m research vessel.